Bravo Terry -- Great Editorial In September MR

[BR60103]

Now, what would UP's reaction be to a yellow boxcar labelled "Onion Pacific" or "Confederacy Pacific"?

[LuthierTom]

OK, Dave, before you put me back to sleep [;)] I'll "fess up" - one of my other hobbies is guitar making. [:D]

[dknelson]

Well the corporation I work for is not a stockholder owned company so I can only give a general reaction to LuthierTom (guitar maker? violin maker? 'fess up Tom). All sorts of people buy one share of stock in a company so they can go to the annual meeting and ask annoying questions and in general make their presence known. These "corporate gadflies" get their 15 minutes of fame but the only shareholders a corporate officer is likely to care about are the ones who hold meaningful numbers of shares - enough to make a difference at proxy and annual meeting time. At most the questions could become just so annoying that the CEO will get angry that his time is being wasted talking about model trains. The CEO is under no requirement to respond to shareholder questions by the way.

I do not know who UP's bigger shareholders are but I suspect they are large investment banks -- most of which have their own law department's rigorously enforcing THEIR trademarks, so don;'t expect much agitation to come from that direction.

Will the licensing fees offset the cost of the lawsuit? Well .... that depends on who is actually doing the lawyering. If it is handled in house that is salaried lawyer time and is "free" in the sense that no green eyeshade type sees a bill coming in to compare it to the possible recovery. If it is handled by outside counsel, they might have taken it on a contingency fee basis meaning the UP is not being billed -- the lawyers take their chances on taking, say, 35% of the recovery if any. I do not know however if very much trademark infringement litigation is taken on a contingency fee basis.
So how could the defendants make this expensive for UP? Well .... there are ways.
Now if the defendants -- and I guess that means Lionel and Atheran unless the MRIA or HIA jumps in on an amicus basis which actually they should -- have enough resources what they can do is demand to depose, say, the CEO, the top officers, and maybe members of the Board of Directors of the UP to quiz them about the license issue and the "late" licensing of the fallen flag trademarks. The UP would probably fight the deposition order but few courts will restrict this pre trial discovery. If the defendant's lawyer wants to, he can start out each deposition by asking about their education background. You would be astounded by how slowly this can proceed. I saw one lawyer take over 6 hours of deposition time on pre-college education! The real SOBs finally conclude maybe the second day of depositions by finally getting the individual to talk about their first day working at the UP. The deposed person starts to realize that it might take a week to finally get around to the actual case in hand. If they are a busy person (and the UP board is make up of people who run their own businesses) they grab their lawyer by the lapel and bellow "Stop this! Stop this NOW." and sometimes the plaintiff drops the litigation because suddenly the "cost" is being imposed on the nonlawyer types. But this "game" can go both ways and the Athearn and Lionel people had better be prepared for long long depositions, not to mention demands for documents that are incredible. You can easily spend $100,000 responding to discovery demands - such as making Lionel find and produce every single document relating to its own trademarks. OK that is 100+ years of documents which are stored ... lord knows where!
You just have no conception how awful and boring a deposition can be, and how hideously expensive discovery can be, if the lawyer is clever enough and experienced enough. And I suspect UP has good lawyers. This is how litigation works -- you work the system so the defendant realizes that they can be destroyed before they even go to trial.
Now that you are all asleep ...
Dave Nelson

[Big_Boy_4005]

QUOTE: Originally posted by LuthierTom

Dave-

Since you have been there, would having stock in the company and then complaining as a stockholder (or group of stockholders) about a policy or its implementation (in this case, the heavy handed-ness) have any effect?

LT

Actually I believe that some of the stockholders have complained about the policy.

Dave, do you think that the licensing fees will offset cost of the lawsuit?

[LuthierTom]

Dave-

Since you have been there, would having stock in the company and then complaining as a stockholder (or group of stockholders) about a policy or its implementation (in this case, the heavy handed-ness) have any effect?

LT

[dknelson]

Speaking as a long time corporate legal employee/officer (not the UP by the way, or any other railroad) I want to point out one factor that might argue against Terry's position and proposed solution
The amount brought into the UP coffers by this license program might seem trivial compared to the UP's overall reveneues. To the corporate controller it surely is. But there is another player here -- the human resources/compensation side. Most corporations have moved to a variety of merit pay called variable compensation which attempts to compensate a person or a division or a department (from the CEO on down) measured by their impact on revenues. As a rule a corporate law department has a hard time claiming it brings in revenues -- more likely it is avoiding losses which is harder to factor into these variable compensation scheme.
Well at the UP one lawyer, maybe two, can take credit for potentially bringing in real revenue as a result of the trademark license program. This creates an incentive for them to be ever more aggressive even if the bigger picture might suggest it is not great for UP's overall public relations -- it can make the railroad look pretty silly if the right news reporter gets ahold of the story. This is one of the dangers of these variable compensation programs -- they can make departments operate in a very independent manner without a view to the overall welfare of the corporation, and it is measured by very narrow economic factors. That is, a million bucks in license fees matters, a million dollars worth of "damage" to corporate image cannot be quantified so it is almost as if it does not exist.
But this same factor makes it unlikely the revenues would go to charity because then it might not be useful for variable pay. If the UP's lawyers have variable pay, expect them to fight this charity idea tooth and nail. And it explains the unusual degree of fervor with which the UP is pursuing the issue.
By the way I agree fully with a prior poster -- the UP has the clear right to protect current and useful trademarks but it is absurd and obstructionist for them to claim that a model of, say, a Chicago Great Western box car is somehow something they need to profit from, just because the CGW was gobbled up by the C&NW in the 1960s and the CNW was in turn gobbled by the UP in the 90s. None of their reasoning holds and all you are left with is "we are big and have lawyers on salary; you are small and would need to pay your lawyer by the hour, so pony up the cash or we can and will destroy you." The UP's legal right to do this will never really be tested because nobody, believe me nobody, on the model railroading end of things has enough lawyers on salary to even negotiate the issue without losing their shirt, even if they "win." There is almost no possible victory even in winning.
Dave Nelson

[billso]

I'm very glad MR addressed the question, and appreciate Terry's level-headed and reasonable tone. However, he avoided the most controversial and arguably least-defensible portion of UP's position: demanding fees for licensing fallen-flag trademarks not used or promoted in years. Indeed, they re-registered these trademarks only a couple years ago, just before initiating the licensing program, and can't argue these logos are critical to protecting their corporate image.

In my view, UP's heavy-handedness has created a public-relations problem which more than negates their multi-million dollar TV campaign. Their PR in general, across the company, has frequently been amateurish and rarely recognizes that their constituencies overlap. Modelers, railfans and Amtrak travelers are also stockholders, shippers, employees, regulators, politicians and voters.

In my view, they can still regain goodwill if they:
* apologize for their clumsy rollout (though not for their right to license)
* license only the trademarks they use or truly may use
* drop onerous requirements like tooling rights (never mentioned publicly)
* publicly publi***heir licensing terms in full

Yes, other Class I's have begun licensing also, but none seem to have approached UP's tin ear.

-- Bill in Seattle

[darth9x9]

I must say the September issue has Terry's most intelligent editorial yet. It is worth reading and puts a common sense approach on the licensing issues. Hopefully it will stop most, if not all, of the flame posts here on this forum about this topic.

[the-big-blow]

I agree. Great job.

[jwmurrayjr]

I liked it too.

[:)]

[Anonymous]

[#ditto]
Attaboy Terry,
A voice of sanity in the wilderness.

[jsoderq]

Agreed. Terry gets a big attaboy.Good info is aslways welcome.Also see Bob Hundmans editorial in June Mainline Modeler for the real attitude of the UP br-ass

[Big_Boy_4005]

Thanks for putting some numbers behind all of the heated discussion over trademark licensing. This is the first time that I can remember seeing an editorial have to be continued onto another page. The length is totally justified given the importance of the subject, and I liked the proposed solutions. [^]

The value of any trademark is what consumers are willing to pay for it, not what the company's accountants think it should be. [:0]