Lawmaker backs model hobbyists in dispute with Defense firms

Rep. Robert Andrews, D-N.J., is waging a small-scale war against defense firms who charge what he considers hefty and unfair royalty fees to companies that produce models of military equipment.

The battle pits Andrews and the $2 billion-a-year model hobby industry against the lucrative defense contracting sector, whose individual weapons system contracts can easily top the combined annual revenue of all the model makers.

Andrews, who has been pushing for legislation for two years that would eradicate the trademark royalties, convinced House Armed Services Chairman Ike Skelton, D-Mo., to insert a provision in the fiscal 2008 defense authorization bill that would require the Defense Department -- not the defense industry -- to issue trademark licenses for a "nominal" fee.

But the fight is not merely over the royalty income, which is hardly critical to the bottom lines of the defense giants who supply tanks and planes to the military. It is also over ownership rights to the designs of military hardware created by defense firms but paid for with taxpayer dollars.

"It really occurred to me that the design is really the property of the federal taxpayers," Andrews said in an interview.

Andrews and other supporters point out that when defense companies charge fees to license their military gear to model and toy companies, they are forcing taxpayers to foot the bill twice for the weapons systems.

"What gives the defense contractor the right to collect money on something we've already paid for?" asked Michael Bass, the president of Stevens International, a model wholesaler in Andrews' district. Bass, the self-described "quarterback" on the issue, first brought the issue to Andrews' attention several years ago.

But the defense industry staunchly disagrees, arguing that by abandoning the licenses, firms like General Dynamics Inc., Boeing Co. and Northrop Grumman Corp. cede a bit of control over their own products.

"The issue is as much an issue of control of the use of likenesses as it is the actual revenue," observed a defense industry source who is tracking the issue. "I don't gather that the revenue issue is all that important."

Another defense industry official familiar with the provision suggested the language could set a precedent for defense and firms in other business sectors. "What is the path you go down when the government's confiscating intellectual property?" the official asked.

But Andrews emphasized the language is not meant to create a slippery slope. Rather, he said he only intends to correct one practice he considers unfair.

At least one defense company -- General Dynamics -- asks companies that make plastic model kits to contribute to Toys for Tots in lieu of paying a license fee. Others, according to a spokesman at the Aerospace Industries Association, charge only enough for the licenses to cover administrative costs.

But that equates to anywhere from 2 percent to 10 percent of the total cost of the model or toy, said Ed Sexton, director of new product development at Revell-Monogram LLC, one of the world's biggest makers of model kits and die-cast models.

Elaborate scale-models can cost as much as $100 -- making the royalty fee more than mere pocket change for hobby companies, who have been struggling to attract young consumers, who turn increasingly to computers and other electronics for fun. The fees are passed on to consumers through higher retail prices for the model kits.

The language, tucked into the authorization measure the House approved last month, is similar, but not identical, to that of stand-alone bills Andrews has introduced in recent years. Those bills would require the Defense Department to stipulate in contracts with defense firms that they cannot charge the fee.

That bill language was included in the House version of the fiscal 2007 defense authorization bill, but ultimately died in conference with the Senate amid heavy pushback from the defense industry.

Andrews said he plans to leverage his position in the new Democratic majority this year to usher the new language through to final passage this year.

Meanwhile, Bass said he and others in the industry are continuing to "badger" Senate offices to gain support for the Andrews language.

Royalties for model companies first began about 15 years ago, when automobile manufacturers began charging fees to produce likenesses of their cars and trucks. It wasn't until several years later that defense companies followed suit.

Model makers say they have no problem paying fees to the producers of commercial products developed with private money. But, insisted Revell-Monogram's Sexton, "We believe that military products paid for by U.S. taxpayers are in the public domain and not the private property of the people who produced them."

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