Too Big to Fail?

Remington’s bizarre “Brother, can you spare a dime?” Campaign

It was ten years ago that I wrote about one of our industry friends playing an interesting voicemail at the SHOT Show. Consider all that has changed since then. These friends are innovators, with some valuable patents in their portfolio. Because Remington liked one of their inventions, they worked out a licensing deal. Remington paid royalties, and got to use the invention. Often, it’s the big guys paying the innovative upstarts. Pretty cool.

Hoping for Handouts from the Little Guys

The story becomes more interesting in the retelling, with the hindsight of failed management, bankruptcy, and the scattering of the remaining assets to the winds (and to some smart buyers).

Big companies with a wide range of products commonly license technology so they can have a complete product line, and compete with the innovators. As a result, they can charge a premium for products with the hottest features, and they share a piece of the extra profits with the inventor. Everyone wins, including the consumer.

So it was pretty strange to hear for myself the voicemail that a Remington guy left for our friend. Mr. Remington hemmed and hawed a bit, and nervously chuckled as he explained that times were hard in the industry, and Remington needed a teensy-weensy little favor to help their profitability this year.

Remington’s bold business plan was to ask the owners of the patents that they have licensed to simply forgive the royalties Remington was supposed to pay them this year. Yes, believe it or not, big-boy Remington expects the smaller companies from whom it licenses money-making technology to make a charitable donation to Remington’s bottom line.

Keep in mind that many of the patent owners are competing with Remington. Hypothetically, a small-fry sling maker might have a patent on a swivel hardware element that Remington is licensing for sale as an included accessory with each rifle.

The sling maker loses the chance to sell to those buyers, but takes the (much smaller) royalty instead to offset the loss of profit on his own sales.

Remington wanted to keep selling the invention, and not pay the patent owner a penny. My response to this brash and bizarre begging campaign would be to say: “Nuts!”

Of course, the strange voicemail did assure the patent owner that Remington wasn’t just asking him for a handout, but was asking ALL of their royalty recipients for a handout as well. So I guess the patent owner was supposed to take comfort in the notion that he wouldn’t be screwed any worse than anyone else is.

We have yet to hear any rationale for why waiving royalty payments for a year and boosting the licensee’s bottom line is of any benefit to the patent owners. We could understand if a company were on the verge of bankruptcy, and could stay alive to pay future royalties by waiving them this year.

So either Remington’s on the verge of bankruptcy (which we highly doubt – update: this turned out to be true, except for “the verge”), or they had a really dumb plan that likely won’t raise a penny, and brings only justifiable embarrassment to their management (or to a rogue employee who got a little too creative).

Oh, and another lesson: If you’re going to propose something really dumb, wait until you’re on the phone, or in person to propose it. Don’t leave a voicemail recording of your cockamamie scheme.

But at least we can thank the boys in green for one thing: Reminding us to tell you that your intellectual property assets can generate valuable revenue, on terms you can control. It’s all about licensing.

The REAL American Dream

It’s no secret that patenting your technological innovations and distinctive designs is often a sound investment. And securing your valuable brand assets with a trademark registration is just as sensible. It means that the engine and fuel that makes your business operate profitably, and gains value for the future are protected. Knock-offs can’t undercut your profits, and your competitors are kept at a safe distance behind you.

Owning a valuable business that generates plenty of profits, and is eventually a salable asset is one of the American Dreams.

But some people might agree that the REAL American Dream is a business that owns intellectual property assets, and profits from the royalties those assets generate. Instead of (or in addition to) making and selling stuff, you’re in a different business. I call it “the business of going to the mailbox and collecting checks.”

Toying Around with Your Brands?

The most common licensing deal in this industry is for airsoft toys. Although there are many options for licensing your brands, we’ll use airsoft as the first example that usually arises. Kids want to play with toys that are as real as possible, as do grownups, especially overseas where real guns aren’t allowed. There is lots of competition in the airsoft business, some of it shady (in the sense that they don’t give a hoot about your U.S. patent or trademark rights).

The airsoft sellers could certainly sell generic gun designs (or innovative ones) that don’t infringe your rights, or require paying a royalty. But their customers much prefer as close to the real deal as they can get. You see, all your investment in building your brands, and your company’s reputation has profound value, and the consumer will pay for it. And that is why the airsoft makers will pay to make toys that use your designs and brands.

Suppose your products weren’t protected by design patents or “design trademarks” (aka trade dress). The airsoft makers could probably get away with a molded duplicate of something from your catalog. But they can’t use the brand name markings you’re using on your products, and they can’t use your brands and logos on their packaging and labeling. They couldn’t even list it in their catalog as associated with your company or product name. And that makes it hard to sell, especially to consumers who want the aura that surrounds your cool products.

This is why an airsoft company may happily pay you for the privilege of putting your brand on their products.

Beyond Royalties: The Added Benefits of Licensing

You might be delighted to have the extra couple thousand dollars per year coming in (or tens of thousands, or hundreds of thousands – keep adding zeros until this example gets interesting). On the other hand, you might not want another business relationship to worry about going south, and have to monitor to be sure you’re getting paid. You might even worry that putting your serious brand on frivolous toys could be a mistake, and dilute your brand’s image. Those are valid issues, and we’re not trying to talk you into licensing at every opportunity, but instead want you to be aware of the issues so you can consider them wisely.

As far as the frivolous image issue, you might check whether your toughest competitors are licensing, and for what. Odds are that they have some licensing agreements, and that suggests it’s safe for you. You can do a simple search for their brand and “airsoft” on Google. And we can do a quick trademark search to see what has been registered.

What amazes us is how few major gun companies actually secure a registration for even their one core brand, covering airsoft goods. When we assist in negotiating and executing a licensing deal for our clients to generate royalty income, we always advise registering the licensed brand for the airsoft goods.

Even if the royalties are small compared to the rest of your business profits, keep in mind the corollary benefits.

Another company will be investing in advertising your brand, increasing its value. Customers who start with one of “your” toys will aspire to own your products when they are ready for the big leagues. Not only might an adult buy a gun out of nostalgia for a childhood toy, but it’s easy to imagine the “Happy Meal Factor” (kids influencing parental purchase choices): “Mom, get the Sig. Sigs are way cooler. That Glock is ugly. Besides, then we’ll have matching guns!”

And consider also that a serious airsoft owner might prefer the interface and feel of a gun whose controls are already very familiar.

Other benefits are international. You might not want to bother investing in trademarks around the world, because your main market is in the U.S., and a U.S. trademark can prevent the knock-off imports that might be your primary worry. But the right airsoft licensing deal can expand your rights internationally. The licensee (that’s the one who’s putting your brand on their products and paying you a royalty for the privilege of doing so) may agree to secure trademark registrations in many countries to protect your brand. They may also agree to be responsible for going after infringers, at no expense to you. That’s because their core business is threatened by infringers (and they know the ropes in those foreign countries). We suggest cutting a deal where you either own the foreign registrations, or have the right to take ownership at any time. (Expect to reimburse them for their out-of-pocket costs in getting the registrations if you want to own them.)

Expanding Your Trademark Empire

Trademark rights are limited to the goods they are actually used on. If our brand is used only on guns and gun parts, then someone else could conceivably use and register it for unrelated goods. Airsoft toys are clearly closely related to firearms, and that’s why the airsoft guys pay to license brands. So you can already keep them at bay with your main trademark registration.

But every time you expend your rights to new goods, it increases the value of the brand. If you used (or licensed) and registered your brand for flashlights, it’s obvious you’d expand the power of your brand to a whole new type of goods (and all the goods considered “related” to flashlights). The same goes for knives, sunglasses, bicycles, or anything else. Companies like Smith & Wesson have a substantial licensing program, and you can find their brands across a surprisingly wide range of products.

Here’s one powerful way that expanding your empire works: It’s like expanding the fenced area of your ranch. A trademark for one type of goods (like firearms) gets you so many “acres” of property you fence in for yourself to call you own. It might include rifle scopes, ammunition, airsoft toys, and other goods related to firearms. But if you (or your licensees) are using the brand for airsoft, you expand the fence out in that direction, encompassing territory that wasn’t covered by your initial use of the brand for firearms. With a registration covering airsoft, you now cover squirt guns that weren’t covered before, action toys, and other things legally related to airsoft, but not to firearms.

Even better, you can also find a licensee outside of your “ranch.” When Smith & Wesson uses (licenses) their brand for bicycles (sold to urban police departments) they protect a whole new broad range of goods. If you find enough licensees for enough different types of goods, you can essentially cover the globe. Anyone who tries to use your brand for just about anything will likely be related to one of the types of goods you have protected.

Learning from the Bad Guys

The best (and worst) examples of this are what we call the “Trademark Predators.” One can’t help but admire in a way the fiercest predators for their success. The trademark predators are those who have managed to acquire enough rights in a popular word (such as “Stealth” or “Terminator”) to start an empire. They send demand letters to everyone who uses the word on goods they argue are “related” to one of the types of the goods in that brand’s portfolio. They offer a license in the first letter, maybe for as little as a few thousand dollars per year.

The predator doesn’t want you to be scared away and stop using the brand. No, they actually want you to take the license, and expand their empire a little bit more. This makes it easy for them to go after the next innocent victim. They want to recruit you into their army to help them build their trademark empire.

We interrupt this program to bring you a public service announcement that probably makes us sound like a broken record: DON’T START USING NEW BRAND NAMES WITHOUT HAVING SEARCHED THEM FIRST! – It’s quick, easy and cheap, and we can help at a moment’s notice, often while you’re in the meeting tossing names around.

Now, back to our story: Often the predators go too far, and you can call their bluff. I once had one of their lawyers on the phone, and because I was onto their game, I actually heard myself saying that our client would be willing to use their brand, if they paid our client for the favor!

But the lesson is that you can legitimately create an empire that leaves less and less room for others to use your brand on different goods. This increases the value of your trademark assets, and the potential royalties they can generate.

Tradeshows – Unmasked?

Meanwhile, as the NRA show was cancelled, the NASGW Show appears slated to proceed. I’m wrestling with the idea that masks are required by that Columbus, Ohio venue’s authorities, and whether I really want to put up with that. I’d welcome all your feedback on the issue, and will happily keep things off the record.

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About the Author: Ben Langlotz

Ben Langlotz is the nation’s leading firearms patent and trademark attorney, and the author of Bulletproof Firearms Business: The Legal Guide to Success Under Fire. He is trusted by more firearms industry companies than any other lawyer or law firm in the nation, and is consistently ranked at the top of all attorneys in securing gun patents and gun trademarks.