More on “A Couple of Good Questions"

Ref: Letter in March 2006 issue “A Couple of Good Questions.” You missed the largest cost to us manufacturers: The cost of the tooling. That has to be amortized over the expected sales. The cost of tooling for a locomotive in HO, N, or Z runs similar, and that is the cost of a new three bedroom, two full bath house with a two-car garage, on a premium lot in a fancy suburb. And there is no mortgage: you pay 100 percent of the cost of that house upfront. Then you have to sit back and see if you can get your investment back, no guarantees from the government or anyone else.

The sales volume on all of this stuff continues to trickle downwards, so the cost of the tooling per unit continues to drift higher. And unlike a house, if the item does not sell well, you have no other way to recoup your investment. At least with a house, you can probably sell it for close to what you paid for it in the near term.

We have had a few complaints in a similar situation as to why the 4th “Add-On car” for our Pioneer Zephyr seems to be high priced. Well the only people who are going to buy it are the people who already have a Zephyr train. Since this is an articulated car it does not mate with other passenger cars, so the sales potential is quite limited.

Most hobbyists think all model railroad manufacturers sell this stuff in the tens if not hundreds of thousands of units. If they knew the real quantity sold they would be stunned.

Thanks, John, for a great publication.

Jim Conway
Con-Cor International, Ltd.

Thanks, Jim, for helping on that one. Lewis Polk of Aristo-Craft once asked me if I wanted to know how to make a small fortune in model railroad manufacturing. Like a fish rising to a lure, I was interested. He then told me, “Start with a large fortune!”

In the original letter, the question involved Micro-Trains’ wonderful Z-scale GP35 and why the writer thought it was so expensive. Adding in your response, we should also know the cost of tooling and then divide that by the production run to determine how much tooling cost is in each sale unit. We don’t have those numbers, but one can only assume that is a major part of the cost. So we’d like to thank Micro-Trains for taking that risk. — Ed.

DCC in General

As a model railroader for some 25 years. I have yet to be convinced to switch over to DCC cab control. Here are some reasons why and they’re simple ones at that:

1. I am not on an ego trip.

2. I don’t need the latest and greatest.

3. Converting some 65 engines is too much expense.

4. Same goes for the layout of 20 by 32 feet.

5. More things to go wrong. Keeping it simple is best.

6. My fellow model railroaders could care less.

7. Spending time on how the track runs and scenery is more appreciated by others.

8. Manufactures are not together on compatible systems.

9. Power supplies at best are, in my books, light on power. So you have to buy more of them to make the feeds in various blocks.

10. I have more things to spend my money on than DCC.

In a hobby that costs four times more than when I started. It is best to say at some point, “When do you have enough?” I say yes, I have enough to maintain. I have only one person to impress — myself!

Besides, it runs great the way it is.

Michael Harvey
Saint Marys, OH

Thanks Michael, and I agree with you one hundred percent — for you. This industry has at least a dozen scales of one sort or another, at least that many eras in which to model, a vast variety of power and control types, and all of that offers the modeler some choices. I know plenty of readers who could offer up ten reasons for why they switched to DCC, and some of them would have ten completely different reasons from the next guy. As to the business of costing four times more, I doubt that you have fully factored in the effect of inflation. Compare the price of a new car, such as a mid-sized Chevy sedan from back when with the same category and similarly equipped vehicle today. Look at the cost of a 2,000 square foot house on a city lot back then and compare it to real estate prices today. I began in HO-scale modeling back in 1951 and everything has inflated by a factor of ten or more. With oil prices shooting up, expect another round of inflation very soon. — Ed.

Just a Bit More on the B&A Berkshires

To the fellow who inquired about Boston & Albany Berkshires, they were indeed produced in brass beginning in 1959. The A-1a was offered by LMB in three shipments in 1959 and 1964. The A-1bs were produced in four shipments by NPP in 1977. Numbers produced information is scarce, but at least 495 units were produced by KMT for NPP. KMT also produced the A-2a for Alco in 1975. List prices varied from $60 to $323. See The Brown Book of Brass Locomotives, 1st and 3rd Editions for more information and photos. (You should have one of these in your library, John).

I had a custom made B&A Berk in my hands for about ten minutes back in Tokyo in 1954. The Japanese fellow who built it for me did a marvelous job except that I had ordered the B&M version so my buddy took it. For $25, I should have kept it.

Interestingly the B&A’s unique commuter tank engines were also produced during those years by Int’l and Custom Brass.

BC Bowden, Co-Editor
B&MRRHS Modelers Notes

Thank you, Mr. Bowden. That twenty-five bucks back then was about equal in buying power to perhaps $250 today, so no wonder you wanted to recover it. (See the letter above.) Still, even by that reckoning, it was a pretty good deal. Frankly, I deal with so little brass that a copy of the book would languish unused in my library. I would certainly love to have seen the commuter engines, however. Meanwhile, I have had many responses to the gentleman’s inquiry regarding availability of the A-1a Berks. While the old availabilities have been thoroughly covered, I’d like to hope there is a new version in the works. — Ed.

Responses to “At the Grade Crossing” Trademarks Column

To “At the Grade Crossing’s” Bill Cawthon:

I have been involved with model railroading for most of my adult life. Presently, I am a member of the Patcong Valley Model Railroad Club in Richland, New Jersey. Your article goes into detail about the reasons why trademark owners, many of whom have little to do with railroading or the hobby, are concerned with getting a just return for the use of a railroad name by the hobby manufacturers.

I have no problem with railroad companies which are still in the business every day. However, I have a definite concern with opportunists who have “bought up” fallen flag logos and other logos which have little to do with railroading. The first example of this came to my attention when I was told that UPS, United Parcel Service, would not allow copies of their trucks to be made or the lettering of such to be used.

Model railroading has serious competition, especially for young people today. Things like the internet and the activities involved. Also, extra school activities which cut into a young person’s time and take away from a hobby such as model railroading. Model Railroading, “The World’s Greatest Hobby” is a good motto. However, if we continue to lose the younger generation to other activities, the motto means little.

Railroad companies were happy to have their logos copied to the older models of an earlier day. Who knows what effect that early association may have had on men and women in the railroad and related industries today?

On the one hand, I understand that these “buy-ups” are part of the intellectual properties situation we have today. Personally, I think it gives the model railroading industry a bad name. Those involved with such activities are shown to be (1) greedy and (2) caring little or nothing for the future of model railroading. In the final analysis, how much money can they be making from these legal activities versus what possible damage may they be doing to the hobby and to the industries that it supports?

Neil J. Humphreys, Ph. D.
Via e-mail

Neil: As you mentioned, it is appropriate for trademark owners whose marks meet the use standards for their original purpose to protect and control the use of their trademarks. Union Pacific certainly qualifies and, as I have learned since some of my earlier comments appeared, protecting some of the fallen flag trademarks might also be considered fair as those marks can still be seen in the UP’s fleet. However, once they have disappeared from the roster, I believe it is time for the fallen flag trademarks to disappear from the U.S. Patent & Trademark Office’s registry and pass into the public domain.

However, my beliefs and the wishes of a great many modelers run up against a very harsh reality. Unlike copyright, where passage into the public domain means no one else can slap their name on the work and get a new copyright, trademarks don’t pass into the public domain. Under trademark law, they are classified as abandoned and anyone can reregister them for any goods and services they wish. This can lead to some unpleasant situations. Proctor & Gamble dropped the White Cloud brand of bath tissue in the early 1990s. Paper Partners, a P&G competitor, trademarked the name and licensed it to Wal-Mart as a private-label brand. So Proctor & Gamble’s former brand was now a discount competitor to its current brands. Worse, consumers still identified White Cloud as a P&G brand and any dissatisfaction they had with White Cloud reflected on P&G.

Trademark squatters can also prevent the owner of a trademark from exercising control. Nearly thirty years ago, Coca-Cola attorneys warned management that if the company didn’t get into the branded product market, the door was open for someone else to register the Coca-Cola trademark for use on things like T-shirts and collectibles. Coca-Cola would not even be able to use its own trademark on promotional items used in its own advertising. As the soft-drink maker wanted to retain control over all uses of its trademark, said to be one of the three most valuable in the world, it set up a licensing program in the 1980s.

Incidentally, it used to be that to apply for trademark registration you had to show prior use. That is, you had to sell the trademarked product in interstate commerce. Changes to the law in 1988 eased that restriction. Now you only have to show intent to use the trademark to file for registration. You still have to actually use the trademark on a product that is sold before registry is granted, but your application pre-empts others, including the original owner, from attempting to register the mark for the same goods and services.

Even back in the good ol’ license-free days, you were still supposed to get permission before using a trademark on a product. But, by the early 1980s, General Motors was spending millions of dollars each year fighting manufacturers of knockoffs, some of whom were using GM trademarks in ways the automaker didn’t like. GM decided licensing offered a way to better control the use of its brands by requiring all uses to be approved. There was the added benefit that licensing would bring in some additional cash while covering the costs of litigation against producers of unlicensed products. That litigation was also made a lot easier because it was now possible to threaten criminal prosecution for counterfeit.

You asked, “In the final analysis how much money can they be making from these legal activities versus what possible damage may they be doing to the hobby and to the industries that it supports?”

I have no idea how much revenue Union Pacific realizes from its licensing program, but the potential earnings for a trademark are huge. One source I found said GM’s 1,200 licensees pay the General over $1.1 billion a year. That’s more than the estimated gross annual sales of the entire model railroad industry. Don’t forget this is almost all free money: other than cost of program administration and supplying the necessary references, all other expenses are the responsibility of the licensee.

For what it’s worth, I doubt models of Union Pacific locomotives and rolling stock are the major contributors to UP’s licensing revenues. Perhaps that’s why UP created a separate licensing program for model railroad manufacturers. While I can’t divulge specifics, I can tell you Union Pacific’s royalty rate for model railroad licenses is less than half the industry average.

By the way, I am not trying to persuade anyone to like licensing, even though I personally regard it as a fair practice. I am trying to show why it is going to be very difficult to derail this particular gravy train.

Neil, I was a bit puzzled by your use of UPS as an example of a mark that does not deserve the same consideration as the Union Pacific. UPS is very active in its original field of package delivery. In addition, UPS has been very protective of its trademark for many years. Perhaps you meant the United States Postal Service, or USPS, in which case I agree. I guess that’s one of the downsides of privatization, though a growing number of public agencies now require licenses for commercial use of their markings. These include the Los Angeles and New York City police departments, the New York City Fire Department and the Royal Canadian Mounted Police.

As to what impact licensing might have on young people entering the hobby, that’s a bit of a paper tiger. Despite all the baloney published about how advertising-proof they are, today’s youth are some of the most heavily trademark-oriented consumers I have ever seen. They’ve had licensed products for most of their lives. A couple of extra dollars for a Union Pacific locomotive is nothing compared to the stunning premiums young people routinely pay for a certain trademark on apparel or other merchandise.

Come to think of it, perhaps one of the problems facing model railroading, plastic kits, military modeling, and similar hobbies is that we don’t market and position hobbies in ways that will appeal to the broader youth market. On the other hand, do we want to pay the cost of such marketing? Perhaps we should accept what licensing we must, count our remaining blessings, and move on hoping we can expose plenty of young people to the hobby so enough will grow up to carry the flame. — Bill Cawthon

And from Across the Pond…

I have also seen the Union Pacific Licensee Application and I think it is too much they want to know. And the fee of three percent is too expensive for model railroaders and less a droplet for UP. A symbolic fee of $1.00 would be fair.

I heard years ago Märklin had a fight with Chessie and won this fight. Märklin offers UP-Models in Germany as well as in the USA (www.marklin.com) without indicating a UP-license.

Erwin Pamp
Muenchen, Germany

Danke, Erwin. In light of Bill’s thoughtful response above, and given that we know Brenda Mainwairing of UP is now reading our magazine these days, perhaps UP would opt for a more corporate relations-friendly approach and adopt your concept. The less they charge, the less bickering there will be, and they cannot be making a profit off of the licensing program as it is, nor can they charge enough to make it profitable. It’s almost as though UP swallowed Amtrak!

On the other hand, there is the issue of Märklin. I haven’t gotten anything official from them, however, they do not have a license at this point but are in negotiations. As soon as we know more, we’ll pass it on. — Ed.

Speaking of Brenda

Dear readers, in the RPO last month, Judge Buffington shared with us a letter he wrote to Jim Young, President and CEO of Union Pacific. Here is the response he received followed by his reaction to it.

—

Mr. John E. Buffington 4705 Fawnwood Cove Austin, TX 78735-6614

Dear Mr. Buffington,

Mr. Young received your letter and has asked me to reply. I believe it might be helpful to provide some background about our trademark licensing program.

Union Pacific announced a formal licensing program in December 2002. While we had always exercised control over use of our trademarks, increasing interest in and exposure of the marks required that we develop a more formal process for entities that wished to use Union Pacific marks.

I believe that if you were to poll our licensees, most would describe their relationship with Union Pacific as very positive. Many would tell you that they have received measurable benefit from the relationship because of materials that the railroad provides that helps them produce their products.

Union Pacific has used legal action only as a last resort when repeated efforts to communicate with potential licensees have failed. In all cases, we have made every possible effort to reach a solution that is acceptable to both parties. Unfortunately, we have not been able to reach agreement with Mr. Huxtable.

I can assure you that we have not put “mom and pops” out of business. In fact, more than half of our commercial licensees are exempt from royalty because of their relatively small annual revenue. As to private use of our marks by model railroaders, Union Pacific continues to encourage such use.

Union Pacific has undertaken this formal licensing program to strengthen our ability to control the use of our trademarks and the marks of the historic railroads that are now part of Union Pacific. We believe this will provide the best possible protection to ensure the integrity of these historic names and marks in the future.

Please don’t hesitate to contact me if I can provide any additional information.

Sincerely,

Brenda Mainwaring
Re: Correspondence with Union Pacific RR

Dear MRN Editor:

I recently sent you a copy of my correspondence directed to Mr. James Young of Union Pacific RR. Today I was favored with a response from Ms. Brenda Mainwaring, Director of Corporate Relations, which attempts to explain the reasoning of UP in regard to its recent licensing program. In fairness to UP, I believe you should have their response as well as my complaint.

The majority of Ms. Mainwaring’s letter is self-explanatory. I would have some doubt about paragraph two where she says, “While we had always exercised control over use of our trademarks, increasing interest in and exposure of the marks required that we develop a more formal process for entities that wished to use Union Pacific marks.” I do not know that the fallen flags “exercised control” over the use of their trademarks, and I would wonder if an argument could be made that the fallen flag marks were public domain before UP acquired them.

It seems that UP should be able to protect its trademark, but I question the need to protect the trademarks of the fallen flags. Ms. Mainwaring speaks of the need to “...provide the best possible protection to ensure the integrity of these historic names and marks in the future.” I do not understand that marks, not used in commerce, are in great need of protection for reasons of integrity or any other reason; I may be wrong in that conclusion, but the marks do not appear to be needed by UP to conduct its day to day business, and I do not hear them saying that these fallen flag marks will be used in commerce in the future.

At any rate, please accept the response from Ms. Mainwaring for whatever it may mean to the understanding of the situation. Thank You.

Sincerely,
John E. Buffington
Austin, TX

Thank you, Judge Buffington, for letting us inside of your correspondence on this issue. Several intellectual properties attorneys have taken the trouble to further enlighten me on the issue. It seems that copyrights and patents are issued by the government and expire after a period of time. There may be provisions for renewal, but these run out eventually and the copyright or patent then falls into the public domain. It can never again be copyrighted or patented.

As these lawyers tell me, the government does not issue a trademark, it is registered. Once it has been registered, there are certain hoops the registree must jump through to maintain the registration. If that registration lapses, the trademark becomes unregistered, at which point the original company or some other company may then register it. Bill Cawthon’s response earlier is a case in point. Ergo, trademarks never fall into the public domain, an issue that Congress should rectify. If they set a maximum trademark period as a hundred years from first registration to expiration, then most of these fallen flag trademarks would fall into the public domain. At least, that’s what I’m told. We would, of course, enjoy your perspective anytime you care to share it with us. — Ed.