News: MTH negotiates new Union Pacific licensing deal for all

[Rene Schweitzer]

Standing firm on principle, Mike Wolf, president and owner of MTH Electric Trains, has negotiated a new royalty-free licensing deal with the Union Pacific RR that extends to all model railroad manufacturers and their products in all scales.

“It was the right thing to do,” Wolf said in an exclusive interview with Kalmbach Publishing Co., publisher of Garden Railways.

Wolf announced that the deal, reached November 2, 2006, is royalty-free and continues in perpetuity. “It’s the best thing for the long-term health of the hobby,” Wolf said, forsaking any advantages that MTH would have gained from negotiating a deal only for itself.

Bob Turner, Senior Vice President Corporate Relations for Union Pacific, said, “Mike Wolf is to be commended for his commitment to the model railroad industry. His energy and passion helped us find a solution that will better reflect the positive relationship that Union Pacific and the model train industry have enjoyed for many years.”

The Union Pacific had sued MTH in 2005, stating that the model train manufacturer continued to produce Union Pacific-branded trains in violation of the railroad’s 2002 licensing program.
Rather than give in, MTH chose to defend itself on principle. “It was wrong. They [Union Pacific] had supported us in our manufacturing efforts, and we spent $5 million in tooling just for their trains, like the Big Boy, Challenger, and turbines,” Wolf said emphatically.

The original Union Pacific licensing program called for a five-year agreement, which Wolf also faulted. “There was no long-term security in that deal,” he pointed out. “After five years, who knows what could be happening, and manufacturers have already invested in tooling.”

Wolf also was concerned that if MTH didn’t stand up against Union Pacific’s licensing program, other railroads – Wolf gave Burlington Northern Santa Fe and Norfolk Southern as examples – might in time demand similar royalties that would hurt the hobby. He said that he would like to see all railroads adopt a model railroad licensing program identical to the new deal with Union Pacific.

The new agreement covers all model railroad manufacturers, including MTH rivals Lionel and Broadway Limited. Companies making model trains will need to contact Union Pacific to learn specifics and to be covered under the new program, Wolf said. Under the terms of the agreement, manufacturers must continue to use professional materials and maintain high standards when creating Union Pacific-branded trains.
The agreement covers not only historic road names, such as the Southern Pacific and Chicago & North Western, but all future Union Pacific logos and slogans. “At first Union Pacific didn’t want to let go of that,” Wolf said.

In 2002, Union Pacific enacted its licensing program. The railroad asked model train manufacturers, apparel manufacturers, and others seeking licenses to pay royalties for the use of the Union Pacific shield emblem and insignias of railroads absorbed into the Union Pacific, including the Southern Pacific, Western Pacific, Chicago & North Western, Missouri Pacific, Denver & Rio Grande, and Missouri-Kansas-Texas (Katy).
The original program drew the ire of model railroad manufacturers by asking for a 3 percent royalty on all model railroad products bearing Union Pacific and merged-road logos or a 1⁄2 percent payment based on total sales of model railroad products. The program also required manufacturers to reveal to Union Pacific their business strategies for Union Pacific models, including marketing budgets, manufacturing details, distribution channels, and sales goals.

Union Pacific filed lawsuits against both Athearn and Lionel in 2004. Both of those manufacturers reached settlements with the UP, and most other model railroad manufacturers agreed to the terms of the licensing program. Then, in December of 2005, UP filed suit against MTH, accusing the manufacturer of failing to comply with its licensing program.

Wolf credits Nils Huxtable of Steamscenes calendars for getting the ball rolling against the original licensing program. Huxtable, whose company produces Union Pacific and Southern Pacific calendars, challenged the Union Pacific’s demands using his own money, Wolf said. “Give that guy credit. He stood up and fought for his principles. He’s my hero,” Wolf said. Huxtable is included in the new licensing provisions, but other non-model railroad licensees are not covered, Wolf said.

Part of the new agreement calls for commemorative MTH models of SD70ACe locomotives in UP colors and bearing the logos of model railroad manufacturers and the Union Pacific. Wolf said he hopes all manufacturers lend their logos for use on the locomotives. He left the door open to an arrangement between MTH and other manufacturers in HO and N scales to produce similarly marked SD70ACe’s.

Wolf said that sales of MTH locomotives and cars in Union Pacific colors had dropped noticeably as negative publicity toward the licensing program grew. He now foresees sales of Union Pacific branded model trains returning to their pre-licensing levels.
Past experience gave MTH the nerve to challenge the Union Pacific lawsuit, Wolf said. In response to the suit, MTH’s attorneys subpoenaed tens of thousands of documents related to the Union Pacific and model railroading, down to the level of any Union Pacific employee e-mails that mentioned model railroading.

Wolf added that while lobbying against the licensing program through business and even Congressional contacts he has made over the years, he frequently ran across professionals outside of the hobby who had a soft spot for model railroading.

[Anonymous]

is the text of the agreement, or major parts of it, available?
it'd be handy to have for anybody approaching any other line.

[kstrong]

Okay, perhaps it's post-election day cynicism, but I could be tempted to believe that the bean-counters at UP decided that the royalty fees they were collecting weren't worth the bother of what it was taking to collect and defend them. Of course, that kind of thinking is likely a side-effect of 8 weeks of covering election season politics. At this point, my brain has me believing my dog has an agenda. (Never trust an animal that barks and wags his tail at the same time.)

Seriously, I'm glad that both the election season and UP's fees are behind us.

Later,

K

[kimbrit]

I agree with Kevins cynicism, there's no way on this planet would they have surrendered their fees if it was paying them big bucks. The little guy has done good here, but I bet UP are glad that they've saved face on this.

Kim

[Rene Schweitzer]

hwn,
I don't have access to the terms of the agreement documents, sorry.

Rene

[billblankley]

If you want to pursue this further check out http://www.railking.com/news.asp

Bill Blankley