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It depends on what they wanted to do with it. Putting aside the subsequent "war is cool" Rambos, the original Rambo was about the traumatic experiences of Vietnam veterans. What could a prequel add to that? Another pointless action flick? Or another derivative Vietnam War drama that would now...
It's a shame. Apparently, this isn't the first time they've forcibly taken franchises from their creators, and the publicity surrounding this trial could be quite interesting. Especially if she really did slander him just to get it.