OT Sort of: :Licensing Fees Hit Model Trains

looks like they are not just going after us guys. From the San Francisco Chronicle
Craig
LAZARUS AT LARGE
Trouble for model trains
David Lazarus
Sunday, December 7, 2003
At Franciscan Hobbies, model trains account for nearly half of all sales at the 57-year-old Ingleside shop, making it the largest dealer of model trains in San Francisco.
John Gunther, the shop's manager, said that with many passenger cars going for about $35 and locomotives selling for as much as $300, it's not unusual for model-train enthusiasts to plunk down a hundred bucks each time they visit.
That's why Gunther thinks it's such a shame that Union Pacific, which runs the largest railroad in North America and boasts a corporate history dating back more than a century, is trying to stick it to model-railroad buffs by, for the first time, charging a licensing fee for use of its logo.
Not just that. Union Pacific said in an October letter to model-train manufacturers that it wants a fee paid for use of any historic logos of railways gobbled up in the past by the company, including the Southern Pacific, the Western Pacific, the Chicago & North Western and the Denver & Rio Grande.
"It seems like they're desperate for every penny they can get," Gunther said.
Tim Geddes, president of Southern California's Athearn Inc., one of the leading makers of model trains, said licensing fees could add about $5 to each $100 item sold. "There definitely would be a negative impact," he said.
Geddes, who also serves as chairman of a model-train industry group, said Union Pacific trains now account for about 15 percent of sales. "But once Union Pacific does this," he observed, "all other railroads will do it."
Union Pacific, which reported record revenue of $3 billion in the most recent quarter, says it's not introducing fees just to pocket a little extra cash.
Rather, the railway says it's investing millions of dollars in a brand- awareness campaign and is hoping to license its logo for all sorts of merchandise, from clothing to train paraphernalia. As such, it has decided the time has come to crack down on trademark violations, including among the model- train crowd.
"If we're going to protect our logo, we have to protect it," said Kathryn Blackwell, a Union Pacific spokeswoman at the company's headquarters in Omaha, Neb. "I don't know why model railroads should be any different from companies that manufacture engineer's caps using the Union Pacific logo."
True enough. If Union Pacific wants to use its logo for merchandising purposes, like Coca-Cola, McDonald's and countless other corporations, it has every right to safeguard its interests.
On the other hand, Coca-Cola and McDonald's don't have a vast subculture of devoted followers who obsess about all aspects of the company's products -- people who can tell you that the first Union Pacific rail was laid in 1865 or that the final spike of the Western Pacific line was driven in 1909.
"There are perhaps a million model railroaders nationwide," said John Sipple, editor of Model Railroad News, a monthly publication with about 8,000 subscribers. "That includes everyone from serious enthusiasts to those who get out their train once a year to run it around the Christmas tree."
And there's a more complex aspect to this whole matter, one that lawyers for Union Pacific and model-railroad manufacturers have been quietly hashing over for months: Does Union Pacific still control the logos of historic lines it acquired long ago, or have they passed into the public domain?
One model-train buff who also happens to be a prominent antitrust attorney told me that it's highly debatable whether a licensing fee should have to be paid for the long-gone Cotton Belt line, for example, when Union Pacific has made no effort for decades to protect the trademark.
The attorney, who asked that his name be withheld because his Bay Area firm represents Union Pacific on other matters, said it will be up to the courts to decide the merits of each trademark claim on a case-by-case basis.
That's where the $400 million model-train industry comes in. Geddes at Athearn Inc. declined to go into specifics about negotiations with Union Pacific but said nearly all makers of model trains, including Lionel, the market leader, have banded together to oppose the licensing fees.
"We are aggressively pursuing this situation," he said. "It represents a monumental shift for our industry."
A Lionel spokeswoman declined to comment.
Geddes noted that the vast majority of logos affected by Union Pacific's move are for historic lines, not Union Pacific itself.
This makes it likely that model-train manufacturers' opposition will center on whether such logos are now in the public domain.
"This is a major issue for us," Geddes said. "If prices go up, people could stop buying."
Union Pacific's Blackwell acknowledged that licensing fees are a big deal for model-train manufacturers and enthusiasts.
"You know why?" she asked. "Because they've never had to deal with this before."
But Blackwell insisted that a trademark is a trademark, and anyone who uses a Union Pacific logo must pay the price.
"We're not trying to put anyone out of business," she said. "We're just protecting our brand."
At Franciscan Hobbies, Gunther said he understands what Union Pacific is trying to do.
But he wonders why an exception can't be made for the train nuts who want only to bask in a great railway's reflected glory.
"At this time of year especially," Gunther said sadly, "you hate to see someone get so money-grubbing."
David Lazarus' column appears Wednesdays, Fridays and Sundays. He also can be seen regularly on KTVU's "Mornings on 2." Send tips or feedback to snipped-for-privacy@sfchronicle.com.
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I just hope they don't make the mistake of demanding fees for a trademark they no longer own. That might be really disastrous.
;-)
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Chris wrote:

From what I hear they're in danger of provoking severe laughing fits when they boast "We Can Handle It".
This attitude isn't all that new. Back in 1980 Chessie System went after model railroad companies for using their logo. Were I getting into the hobby instead of out I'd surely go for a completely private roadname and possibly invent other railroads so I wouldn't have to put up with any of this BS. Athearn could sure see a sales increase in their 'Undecorated' cars.
Bill Banaszak, MFE
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Sounds like they are not getting enough in government subsidies so now they want to scam the little guys for some cash. Freakin' railroads anyway.
Craig wrote:

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In the 1800's railroads screwed poor farmers. In the 2000's they want to screw poor hobbyists. The more things change, the more they stay the same. Can you say "Sikorsky"? Not without paying. Jerry 47
"Grandpa" <jsdebooATcomcast.net> wrote in message

anyway.
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Just think if the Union Pacific Railroad operated a few Sikorskys. What an expensive model that would be.
Andy
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Andyroo111 wrote:

Some new HO scale model railroad locomotives coming out are priced $5.00 higher in Union Pacific paint schemes. Maybe helicopter models will soon be the same?
BB in Canada
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Speaking of, I saw a ton of Sikorsky models & spare parts (real ones!) on eBay yesterday. What's the latest?
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snipped-for-privacy@webtv.net wrote:

I haven't heard of any change. Maybe they aren't paying close attention right now or the sellers haven't heard from Mitchell Pasulka, Esquire.
Bill Banaszak, MFE
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Sadly,
It's more about the greedy, beady-eyed tort lawyers who insist by some twisted logic that the makers, or owners of the real object (be that planes, trains or automobiles!) somehow are culpable if some little kid chokes on a piece of Dad's model kit or HO train stuff! Every licensing agreement I have ever seen, or heard of, includes a guarrantee that the licensee has a specified amount of product liability insurance, and a guarrantee of "hold harmless" meaning that the licensee assumes all legal responsibility in case of a product liability lawsuit over the model kit, model train, or any toy.
Art Anderson
(What do I call 500 lawyers on a replica of the Titanic, with no lifeboats on board? A good start!)
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I find that whole idea insane, though I do recall Boeing using that argument when this came up a few years ago. If they weren't licensing it there is no way they could be legally held responsible. By licensing they actually open themselves up to liability. No hold harmless clause would matter if a plantiff won a $100 million judgement against Sikorsky for choking on a Revell kit part. A judgement that large would bankrupt Revell and Sikorsky would be left holding the bag. FWIW the agreements typically call for insurance, but only in the order of $10 million or so. Now if they were in no way associated with the manufacturer they could avoid a judgement altogether. They could be sued and have to pay legal costs, but there is only the smallest chance that they'd lose.
Personally I think the Suckorski guy let it be known where their concerns lie when he stated that they estimated that they were missing out on ~$500,000 in revenue per year. Wow! I wonder how much it is going to cost them to get that 1/2 a mil. Note that he said revenue, not profit. This from a company that had just shy of $28 billion dollars in revenue last year (United Technologies as a whole, the Flight Systems division that Sikorsky is grouped into made about $5.5 billion in revenue). Hell! I bet they spend more than that just on photographs and artwork for their annual report. Oddly enough in their annual report they clearly note that Black Hawk is registered trade mark and then state that they got the name from a bird.
I wonder if they know exactly how small typical kit production runs are these days. There MIGHT be 100,000 models produced of Sikorsky aircraft in any given year. At a quarter to buck a piece that may be $50,000 per year on average. And they would have to negotiate with a dozen different companies to get that. Makes me think they have no idea how small their return on investment is going to be.
If they only want a quarter or so per kit (yeah and I've gotta bridge you can buy) by the time that gets to your local shop it will cost you a buck. If they want a buck it will cost you four bucks more per kit after it gets through the distribution system.
IPMS El Paso Web Guy http://www.ipmselpaso.org
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Oddly enough in their annual

It means that said bird has to either a) be renamed or b) God has to pay a fee for each one born from the beginning of times, right?. Jose (fed up with all the lawyers BS).
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twisted
trains or

seen,
amount of

that
liability
Art, you ought to know better. The connection between tort claims and licensed toy and model merchandise is so tenuous as to be ludicrous. "If General Motors had only designed side-view mirrors in such a manner that, when reduced to 1/24 scale, they would not impose a choking hazard to a 3-year-old, this death would not have occurred." Ever seen a whole jury laugh out loud? I have. The only reason it's in there is because the agreement's going to get signed anyway and some damn tort lawyer (I generally don't like 'em either.) in the trademark lawyer's firm wanted to piggyback his crap in it and churn a billable hour or two. It's effectively meaningless.
The *real reason* is that there's money to be made from licensing fees. Harley does it; Ford does it; GM does it; BMW does it; all the NASCAR sponsors do it; why shouldn't railroad trademark owners do it as well? I'm sympathetic but, as a *car* model builder, I've seen this stuff for years. Will the RR guys quit buying licensed merchandise just like the car guys did? Yeah; right. So tell us, Art, how much did the sales of *car kits* plummet after licensing became common? It produces some weirdness like the AMT "1968 Plymouth Belvedere" that closely resembles a car named after a certain Warner Bros. cartoon character (Apparently, while Daimler-Chrysler is willing to license "Plymouth" to a number of manufacturers, Revell-Monogram has the only current license to produce a Plymouth "Roadrunner".), but I can live with that.

on
I know *lots* better ones. Coming to Waukesha this week? Maybe I'll tell you some of *mine*. -- C.R. Krieger (Damned Lawyer)
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But, but, but, one of my best friends is a lawyer. Jerry 47

of
ever
effectively
I'm
the
lifeboats
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Waukesha this week? Maybe I'll tell

CR,
While my first response might have been more sarcastic than needed, if product liability weren't an issue with replicas, toys etc., made of real life planes, trains and automobiles, then why do licensing agreements include a stipulation regarding product liability insurance coverage?
On a larger note, of course, if you are a lawyer, then you surely do know that for a manufacturer, or other owner of intellectual property faces a requirement (upheld by the courts, I believe, as recently as the 1980's regarding the knockoff automotive crash parts thing) has a duty to protect (control) the use of their names, trademarks and designs with all potential users, and they cannot be selective.
As for the model car guys quitting the hobby simply because of licensing, well I have been told by people within the car model kit industry that they've been licensees of the auto companies for decades, and by "decades" I take that to mean a span of time that covers both the high and low times of model car kit sales. I don't think that licensing has had much, if anything to do with the fluctuation in popularity of model car kits, more that is a matter of changing demographics in the hobby. Just because the imprinting of legal notices regarding permission to use designs, names, etc., on model kit boxes and instruction sheets didn't seem to begin until the last 25 years or so doesn't mean that there was no licensing in place, just that it wasn't quite as restrictive as it is today.
Some automakers don't seem much to care about how their products (past or present) are represented in model kits or as diecast collectibles or toys; others seem to care a great deal.
I can tell you from personal experience that Ford's licensing arm is very, very concerned about the accuracy of model kits and diecasts of their cars--been there, done that, got the Tshirt, certainly with newly designed product. GM is close behind Ford on that one, particularly with either new vehicles, and vehicles they consider to be their "signature" cars and light trucks. Having designed, and presented for approval mockups of the H2 Hummer, Cadillac Escalade and a production Chevy SSR (for 1:64 scale diecasts) I can relate that they get pretty "AR" about the shapes, proportions and little details. Having participated in a limited way with the development of about 16 years' worth of 1:64 scale Corvettes for 1:64 diecast, same story. Ford is even more so, to the point of measuring out details to quite small fractions of a millimeter! Diamler-Chrysler seems not so particular though. However, I don't think I have ever heard car modelers complain that they weren't going to buy any more Ford, GM or Chrysler model cars just because the thing was produced under license!
As for a Plymouth Roadrunner, Chrysler Corporation had to license that name from Warner Bros., the owner of the cartoon series, along with the cartoon bird used as the emblem (which they in fact did do), perhaps even the distinct sound of the "Beep-Beep" horn/ I suspect that Revell does also. Daimler-Chrysler of course, licenses the name Plymouth, and the look of the car, but the others, I believe are still through WB.
As for the railroad modelers, I suspect that by and large, they will continue to replicate locomotives and rolling stock bearing the heralds of their favorite railroads, that hobby has pretty much been dominated by that desire, and I don't see that changing a whole lot.
What has changed over the years is this: Once upon a time, carmakers, aircraft companies, railroads and the like used to handle the licensing issue internally, generally assessing fees up front that offset the costs of doing it (and of course, some did not bother with licensing at all). Royalties were pretty much the stuff of sports stars, entertainers, singers and movie/TV stars, each with their own agent. In the 80's, full-blown licensing companies came to the forefront, and they began signing on automakers, and lately, even the aerospace industry, even makers of consumer products (can we say "outsourcing"?) Make no mistake about it, licensing firms are in the business to be profitable, otherwise why bother? At the same time, they can take over the contracting, leaving the product approvals to a relatively small staff generally, at the original company owning the rights.
In the toy, and model kit industry, licensing is a way of life, as it has been for as long as you or I have been alive and building models. It's just that until fairly recent times, it hasn't been really visible. Yet, the controversies that surround this issue aren't new to the hobbyist either. There was a "thread" of information way back in 1964-65, in the pages of Rod & Custom Models (that great magazine!) regarding Daimler Benz' threatening to "go after" anyone who scratchbuilt even a single Mercedes-Benz model car for their own enjoyment! Needless to say, some wiser heads at DB must have prevailed, since the issue went away very, very quickly.
Anyway, my apologies for lumping all lawyers in with the relatively few in the tort profession!
Art Anderson
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Gee, Art, you must not have noticed me dumping all of my GM stuff on the secondhand market back in the early '90s. :) I admit, though, to being a hypocrite as my Dodges, Plymouths, Chryslers, Imperials and yes, even DeSotos are still here and cherished. I just mentally dissassociated Chrysler of the '90s from the good ol' Chrysler before the bailout.
Bill Banaszak, MFE
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Because the US legal system has gone haywire? Every sane person can see that Ford has nothing to do with an AMT kit of a Ford Focus, and so can't be held liable for damage caused by the AMT kit. Unfortunately, sanity doesn't seem to be the norm these days in US courts.

Yes, but licensing doesn't necessarily imply a fee. Signing an agreement should be enough.
--
Harro de Jong
remove the extra Zs from Zonnet to mail me
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snipped-for-privacy@zzzzonnet.nl.invalid (Harro de Jong) wrote:

The difference between a model manufacturer getting a license to make models of, say, a 2002 Ford Mustang and the Union Pacific Railroad demanding that Bachmann pay for the right to put a Union Pacific logo on the model rolling stock they sell is that the _design_ of the Mustang belongs to Ford; they control the reproduction rights on the _vehicle_. What the railroads are doing is equivalent to Winston, Champion, Penzoil, etc. demanding licensing fees before you can build a NASCAR race car with their sponsor logos on the vehicle. ALCo, General Electric, EMD, Fairbanks-Morse, etc. own the designs of locomotives; _those_ companies could require licensure of the designs to produce models of their locomotives. The railroads demanding licensing fees for their logos on model rolling stock is about at the same level with the railroads requiring licensing fees for painting a picture or taking a photograph of their rolling stock. And I hope the courts see it that way, and laugh the railroads out.
--
Sean R. Malloy | American Non Sequitur
Naval Medical Center | Society
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Having one's name associated with something with their permission does open some possibilities for legal action. I think its more for the defense of the company should someone claim they are responsible and for the company having to face the possibility of going to the effort to prove they are not. There are a lot of opportunists out there dreaming of being rich.
Tom
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snipped-for-privacy@zzzzonnet.nl.invalid (Harro de Jong) wrote

Can't have it both ways. Trademarks and copyrights aren't just privileges and rights for their owners, they're obligations and potential liabilities. The logo on the box says, "This product is authorized by Ford Motor Company." If an authorized Ford Focus kit were made from a known toxic plastic, it really would be up to a court to distribute liability, the same as a defective part produced by a contractor and sold directly by Ford.
Ford directly sells a lot of collectibles that carry its trademarks or use its copyrights. In any court, Ford would be fully liable for a Ford-logo'd teddybear made from flammable materials and sold through a Ford Accessories catalog; it would be up to Ford to recover its own damages (including damage to its trademarks and reputation) from the negligent supplier.

Yup. I know a slot racing manufacturer who produces a model of a car that was raced by an acquaintance. He has written permission and doesn't pay a fee.
When US manufacturers started formalizing their permission process for toys and models, they said that the fee was intended to cover the cost of administration; the promotional value of toys was understood. In the video game arena, 1:1 manufacturers are eager to give permission and provide data and 1:1 samples free of charge.
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