Guillermo del Toro's film version of The Hobbit could be killed off in a pending battle between a Hollywood giant and the family of the book's author, JRR Tolkien. The heirs to the Tolkien estate are suing New Line Cinema, the studio behind the Lord of the Rings adaptations, claiming $220m (£133m) in compensation for undistributed profits from the films. For good measure, they are also demanding the option to terminate further film rights to Tolkien's work, citing breach of contract.

"Should the case go all the way to trial, we are confident that New Line will lose its rights to The Hobbit," said Bonnie Eskenazi, the lawyer working for the author's son, Christopher, and the family's charity, the Tolkien Trust. The case – officially billed as Christopher Reuel Tolkien v New Line Cinema Corp – is due to be heard at Los Angeles superior court in October.

JRR Tolkien sold the film rights to the trilogy in 1969 for an upfront fee of £250,000 and a reported 7.5% of future profits. Released between 2001 and 2003, the Lord of the Rings trilogy went on to earn upwards of $6bn in theatrical and DVD sales. However, the Tolkien estate claims it has yet to receive any payment from New Line or its parent company, Time Warner. For their part, lawyers acting for New Line argue that terms of the original contract are "ambiguous".

The studio has grown accustomed to fighting legal battles in the wake of The Lord of the Rings' success. In 2005 director Peter Jackson sued New Line for a share of the profits, eventually settling for an undisclosed sum in 2007. The film-maker Saul Zaentz, previous owner of the rights to Tolkien's work, settled for a reported $168m in 2005.

The Hobbit is currently in pre-production in New Zealand, with a release date set for 2011. Tolkien's tale of an intrepid hobbit who sets off in search of dragon treasure will be divided into two pictures, directed by Del Toro and executive produced by Jackson.