When the KLF released their first album, it used so many unauthorised samples of copyrighted music that ABBA threatened legal action, forcing the duo to withdraw the record from sale and dump unsold copies of 1987: What the Fuck is Going On? in the North Sea.

Three decades later the pair – AKA the Justified Ancients of Mu Mu, or more plainly Bill Drummond and Jimmy Cauty – find themselves on the other side of an increasingly fraught copyright battle over who should be allowed to use their music.

It transpires the KLF’s music publisher has spent a year trying to block the release of an unauthorised documentary about the group on the basis that the film-makers do not have a licence to use the KLF’s songs.

“The irony is they used very big uncleared samples in all their early tracks,” said Chris Atkins, the Who Killed the KLF? director.

His film covers the duo’s creation of No 1 singles in the late 1980s and early 90s, their decision to exit the music industry and burn a million pounds, and their move into the art world with the K Foundation.

Atkins and his production team insist they can use chunks of KLF tracks such as 3am Eternal and What Time Is Love? without the express approval of the band. This is because there is a defence in copyright laws for the use of work without payment or permission if it is being used for the purpose of criticism. Unusually, Atkins says his film meets this threshold because he is using archive audio recordings of Drummond and Cauty critiquing their own work.

Representatives of the KLF – a name which, among other suggestions, has been speculated to stand for the Kopyright Liberation Front – strongly disagree with this interpretation of the law.

The Guardian has learned that lawyers on behalf of Drummond and the KLF told the film-makers they took any infringement “extremely seriously”. They said they were willing to “take any and all measures” to protect such rights – and “reserve the right to commence legal proceedings”.

A spokesperson for the KLF’s music publishers, Warner Chappell, explained why they had attempted to block the documentary’s premiere at a Texas film festival last month. “We always champion the value of our songwriters’ music,” they said. “Feature-length documentaries made for profit which make extensive use of an artist’s music are not covered by the fair dealing exception to copyright law, which is why we took action in this case.”

After keeping a pledge to put the KLF on hold for 23 years after burning a million pounds in cash on the Scottish island of Jura, the duo briefly reunited in Liverpool in 2017 to lead a parade of fans through the city behind an ice-cream van. The three-day reunion event concluded with a Jarvis Cocker-led performance of Justified and Ancient and an announcement they were entering the funeral business with the aim of building a pyramid of human ashes in Toxteth. Earlier this year new versions of their back catalogue – with many samples removed – were uploaded to streaming services.

Drummond did not respond to a request for comment on whether he backed the legal action. But Cauty, who in recent years has been exhibiting shipping containers featuring elaborate displays of tiny figurines, told an interviewer in 2016 that he was unhappy with Atkins’s plans for a documentary. “We don’t want to do it – it’s like an archaeological dig through the past,” he said. “We’re doing other things that we think are much more interesting.”

Atkins insisted he made his film as a lifelong fan of the KLF and younger audiences who saw it in Austin were amazed by the story. “The whole point is to introduce their genius to a generation that doesn’t know they exist,” he said. “You watch this film and you think Bill and Jimmy are amazing.”

The director previously made the film Starsuckers about the British tabloid media industry before writing a book about being sent to prison for tax fraud. He is confident that the KLF film – made in conjunction with James Corden’s production company Fulwell 73 – will ultimately be released with the music intact.

Atkins said: “It’s the definitive telling of the greatest music and art story of the 20th century that’s never really been told, because the two protagonists won’t talk about it.”