The Hollywood studio behind a film based on The Hobbit and trustees for author J.R.R. Tolkien's estate said on Tuesday they had settled a lawsuit that clears the way for what is expected to be a blockbuster movie based on the book.

The Hobbit is a 1937 book by Tolkien about a diminutive character named Bilbo Baggins who goes on a treasure-seeking adventure, and it sets the stage for Tolkien's The Lord of the Rings trilogy, with its epic tale of magic and warfare.

The Lord of the Rings books were made into three films released by New Line Cinema between 2001 and 2003 that made about $2.9 billion at worldwide box offices, and similarly The Hobbit is widely expected to be a blockbuster hit.

But in February 2008, the trustees of the Tolkien's estate filed a lawsuit against New Line, a division of Time Warner Inc, seeking more than $150 million in profits from the Rings movies, it claimed it was owed.

The lawsuit also sought to block filming of The Hobbit, which will now be made into two movies by Guillermo del Toro, the filmmaker behind Pan's Labyrinth and Hellboy.

Financial terms of the settlement were not released, but the author's son, Christopher Tolkien, said in a statement that as a result of the agreement, New Line may now proceed with its proposed films of 'The Hobbit.'

HarperCollins Publishers Ltd, a publisher of Tolkien's works, joined trustees of the Tolkien estate in the lawsuit. The Tolkien Trust, a charity tied to the late author's estate, has given away more than $8 million in the last five years.

California Settlement