Modeling New Rail Business

Modeling New Rail Business

Copyright 2003, Traffic World, Inc.

There may be fewer toy trains under the Christmas tree next year if Union Pacific Railroad forces model makers to pay licensing fees for the use of its logos, the model railroad industry warns. Some model makers fear they could be derailed by higher costs.

UP wants the model makers aboard its plan to protect what it sees as its corporate property. Model makers must register and file a licensing fee with UP for use of its logos by Dec. 31 or face undetermined penalties, and some companies say that''s not fair.

"The size of the entire model railroad industry is $500 million in revenue annually," said Tim Geddes, president of Compton, Calif.-based Athearn Trains, a large model maker. "By comparison UP has $12 billion in annual revenue. There''s something really radically wrong here."

Geddes said most manufacturers don''t object to paying royalties on new logos but they complain that UP wants royalties for the use of any logo ever held by the railroad over its 140-year history. Also, they are concerned that other railroads will take the same track. Burlington Northern Santa Fe Railway said it is considering a similar licensing policy.

So does this mean Jimmy won''t get his model train next year? "Absolutely not," said UP spokeswoman Kathryn Blackwell. "It''s pennies. It''s an extremely small licensing fee compared to other industries. We''re not looking to put anybody out of business, just for our logos to be copyrighted. For those that are profiting off us, they owe us some money."

UP says increased exposure in print and television advertising makes it more susceptible to licensing abuse.

"We''ve made a multimillion-dollar investment so far, which we plan to continue," said Bob Turner, senior vice president of corporate relations. "We want to ensure consistency to the standards we''ve created, like any other company with a strong identification."

Turner said UP''s licensing policy is scaled to the size of the licensee and is not burdensome. Manufacturers can choose to pay UP a 3 percent royalty fee per product or a annual fee of 0.5 percent of their total gross sales of all their model railroad products.

Model makers claim that the administrative costs of compliance could double the actual amount paid.

UP says it is willing to negotiate a more acceptable policy, but time is running out, it warned.

"There''s been plenty of time for people to join," Turner said, "and (after Dec. 31) we will act to protect ourselves and those that have signed the agreements."