These are good questions with some surprising answers. Essentially, all of Lovecraft's stories have been in the public domain for decades now, in spite of Arkham House's obstinately proprietary attitude towards ownership of his work. However, their hegemony was based upon a well-maintained illusion and very shaky legal ground. The only reason larger publishing houses such as Ballantine paid them royalties for the stories was out of deference to August Derleth for saving Lovecraft's opus from oblivion . . . . and a very sensible avoidance of his combative and litigious nature. In many cases, Derleth's (and, later, his daughter, April Jacob's) first line of defense was saber rattling and outright bullying. It was a bluff, of course. These ham-fisted tactics did have a solid economic rationale, though: sales of Lovecraft's books were their company's bread-and-butter. Losing control of his work would hurt the company's bottomline. My own early experience with them will provide an illuminating, if unpleasant, example.
In 1986 I had written a screenplay adaptation of the short story, Pickman's Model. After finishing the storyboards and some pre-production illustrations, I decided to contact April Jacobs by phone and inquire after what the rights would cost. I got Ms. Jacobs on the phone, briefly and politely introduced myself and my proposed project and asked about the availability of the rights. She bellowed back at me: "IF YOU TRY TO MAKE THAT FILM I'LL SUE YOUR ASS OFF!" and then slammed down the receiver. The film world is fraught with rejection, but even this was a bit rich for my blood. Many years later I was told by an industry colleague that at the time of my call, Jacobs was under a lot of duress and steadily losing Arkham House's legal control of Lovecraft's work as more and more film makers were having their attorneys investigate the availability of purchasing the rights, film makers like Stuart Gordon and Guillermo del Toro.
Nowadays it's fairly common knowledge that Lovecraft's works are public domain. So, what's stopping film makers from creating direct adaptations instead of derivative pastiches that merely pay lip service to the master? There are several major barriers which will forever elude Hollywood: Lovecraft's stuff is heavily reliant upon texture and atmosphere, not gunplay and huge explosions (sorry Michael Bay) and softcore porn. But here's the real stumbling block: heresy of heresies - Lovecraft's work is animated by IDEAS . . . . grim, atheistic, nihilistic ideas about man's cosmic insignificance. Not exactly the mindlessly upbeat, pre-processed pabulum that usually gets spoon-fed to audiences at your local movieplex nowadays.