Why having Lord of the Rings in public domain is so important?
Would West Side Story or Ran have been made if they weren't?
1. That wouldn't happen, for a large number of reasons.
2. That happens even in the current system (see "The Exorcist: The Beginning" for an example in the movie world).
3. Michael Bay already had movies in competition with the LOTR franchise — copyright does nothing to prevent that. It just requires that some people distantly related to people who paid some money to Tolkien get paid if you want to use the LOTR names and characters.
Darn good, but not perfect. We are now denied the right to re-interpret LOTR, perhaps because we want to include the Scouring of the Shire--not because the movie was necessarily worse without it, but because we _want_ to.
And heck, take a better example: the Harry Potter movies are in great need of re-interpretation, but don't expect to see independent film-makers getting a bite at that apple anytime soon.