Fox is claiming it owns the rights to the movie and that Warner Bros. never fully paid for them.
"Fox claims that between 1986 and 1990, it acquired all movie rights to the 12-issue DC Comics series and screenplays by Charles McKeown and Sam Hamm. In 1991, Fox assigned some rights via a quitclaim to Largo International with the understanding that the studio held exclusive rights to distribute the first motion picture based on "Watchmen," according to the lawsuit.
The project apparently bounced around to Universal and Paramount before returning to Warners. Now, Fox claims that neither Gordon nor Warners has paid the buy-out price or advised the studio of any other conditions required under the agreement, including procedures necessary to acquire the rights to "Watchmen" from Fox." (source)