The San Francisco Examiner from San Francisco, California • 45

San inrnctoro Examiner Mi In (Mini By Beth Hughes OF THE EXAMINER STAFF M)MF IOKYO PRODUCTS: msrssi 12,000. Concept: gift items sold in designed environments. Advertising: none. mind but we have Snoopy, so that tied up the dog. And so we went with the cat, which also would help get rid of some obnoxious mice." Until Kitty's birth, Disney's Mickey Mouse had been a major Sanrio competitor.

No more. In the "social communications" field, which encompasses the sale of everything from pencils to car seat covers, "We don't see any competitors," said Ide with a grin. The company may have competition in particular product areas, such as stationery, but overall Sanrio dominates the field. The Hello Kitty line began with a plastic coin purse, some stationery Big Brother calling OW YOU too can spy for the tax collector. II." The state of California has set up a "hotline" in San Francisco for people Result: lines out the door of a new store in the Ginza.

This is Sanrio, a company with $1.18 billion in assets and two stuffed cats with big heads manning the reception area of its headquarters. The receptionists are the Hello Kitty character, familiar to anyone with even a passing awareness of the schoolyard set: a black outlined white cat with a big head and a big red bow. Sanrio produces what many people once thought of when they thought of Japanese goods: cheap gimcracks and toys. Today, a few hours after dawn in the Pacific Age, those cheesy party favors are sleek items with worldwide kid appeal, an adult cult following and a price range from pennies to big bucks. The company mainstay, Hello Kitty, appears thickly outlined in gray on the pink glossy cover of Sanrio's latest annual report.

She graces the graphs that track income and sales, $30 million and $506 million respectively for 1987. Those figures compare with $20.5 million earned on $477.8 million in sales the year earlier. Sanrio has tapped into the ancient Japanese tradition of gift-giving and the modern penchant for cute things to develop the hitherto unknown field of "social communications." This fruitful new area en- courages the exchange of "small gifts, big smiles," according to the company motto. It was Hello Kitty herself, developed in 1974 by company designer Yuko Shimizu and refined by hours of research with panels of potential mostly female customers, who proved to be the takeoff feline for the company. "The challenge was to develop a character to appeal to the Japanese public," said Kenichiro Ide, a company director.

"We wanted a human-based, lovable character. dog and the cat came to who have the dirt on friends, neighbors or employers they suspect are cheating on their taxes. The snitch line is part of the Underground Economy Task Force, so named because it is seeking the estimated $30 billion in unreported income that flows through California's "underground economy." The state loses $2 billion in tax revenue every year because of unreported cash transactions, such as workers being paid "of f-the-books," according to a state spokesman. Illicit activities such as drug-dealing and gambling account for another huge chunk of change that isn't taxed. If you doubt the state's seriousness in chasing tax deadbeats, check out the roster of California and federal agencies involved in the task force: the California Department of Industrial Relations, the state Board of Equalization, the Employment Development Division, the Contractors Licensing Board, the Franchise Tax Board, the U.S.

Department of Justice, the Department of Labor, and who else? the Internal Revenue Service. For those so inclined, you can tattle at 80CHS22-4557, or write to the task force office at 525 Golden Gate Avenue, San Francisco, CA 94102. Operators also will answer general tax questions. So where's the dough? JIM GABBERT, the Bay Area broadcaster who last month won a hard-fought battle to buy San Francisco radio station KHIT-FM, has yet to make good on part of an agreement that cleared the way for him to buy the station. Under a deal he cut with executive recruiter Tom Ballantyne, Gabbert agreed to donate $1,000 to a Santa Clara County AIDS organization provided Ballantyne stopped challenging Gabbert's purchase of KHIT (formerly KKCY) before the Federal Communications Commission.

Ballantyne lived up to his part of the bargain, 1 i 4 ISSLLO KSTTY and simple tea cups, according to the museum Sanrio maintains on the designers floor of company headquarters here. Now more than 60 character-based lines tell complete life stories, with 40 to 50 of the characters on the market at one time. Some 100 designers and 100 planners mostly female churn out products for everyday, seasonal or special promotional sales. Kitty alone has 500 to 600 items out of the 12,000 in the Japanese catalog, Ide said. Because many of its characters didn't take off in the United States, Sanrio three years ago opened a Burlingame design center to create merchandise specifically for the U.S.

market, said Randy Patterson, U.S. national sales manager in South San Francisco. Patterson said merchandise designed in Japan appealed primarily to adolescent girls in the United States, rather than to the broad market it has won in Japan. "We lost them after 8 or 9 years old in the states," he said. "There was a market we were missing." To expand its following, U.S.-de- See SANRIO, D-5 W1 'vf 1 I miH I -'iV I Ml A Examiner Craig Lee The Sanrio outlet on Union Square sports the Hello Kitty character and the withdrawal of his challenge enabled Gabbert to win FCC approval.

Yet so hasn't paid a dime to the AIDS group, the Aris Project, despite agreeing to so within five days of the March 2 agreement. ig Mac Gabbert has four explanations for failing to uphold the agreement: 1) his takeover of KHIT isn't final yet; 2) he forgot; 3) he doesn't have $1,000 in cash just now; and 4) he "would rather do lunches ittaci something important (for Aris) like giving them $10,000 worth of public-service messages" on his new station. Don't hold your breath. New product PR: Handle with care Pluses and pitfalls of announcing early By Paul Freiberger OF THE EXAMINER STAFF McDonald's aims to protect prefix Solving the free-speech problem WHEN THE San Francisco Progress endorsed Art Agnos for mayor last year, Charles Moore of McGuire Real Estate was so enraged that the newspaper would back a rent-control advocate that he pulled his company's advertising. ISIONS OF the future are the Since he couldn beat the press, Moore and his fellow Realtors now have decided it's wiser to join best public relations tool technology companies ever them.

Sort of. had. The San Francisco Board of Realtors will begin publishing a weekly real-estate newspaper that will carry advertising from members. In fact, that's all it will carry the publication will have McSleep lodgings. McDonald's objects to the name.

"Who are they to think they have the right to own a prefix?" Holler said. "A lot of Scottish people would be upset if they have to take the 'Mc' off their name. We feel they are overextending their boundaries." Hyperbole aside, some trademark law experts think Holler may be right Their opinion is backed by recent rulings by the Patent and Trademark Office of the Commerce Department. The patent office shot down McDonald's challenges to trademark applications for Quick Thaw McStraw, a milkshake product, and for Macpoint, a computer magazine. Like many other "Macs," Mac-point was a takeoff on the name of Apple Computer versatile, but notoriously inedible, Macintosh computers.

McDonald's says it doesn't enter these disputes willy-nilly. The company has an enormous '7ho principal asset of these franchises is their trsdettizrh' Geoffrey Miller, Univ. of Chicago law school investment in its trademarks. McDonald's says it's the most advertised brand in the world, with promotion expenditures in the hundreds of millions a year. Opponents routinely insist that no editorial matter whatsoever.

Moore, incidentally, was chairman of the committee that studied 'pSm, fr8 I' warn nWvj4fiJ f-iTi ill "7fc rM I itevTi-l1 K-l the feasibility of launching the publication. As for the Progress, which publishes the SFBR's officially sanctioned real-estate guide, the reaction is a loud ho-hum. "More power to them, but we don't consider it a grave threat," says publisher William Rentschler. "We plan to expand our real-estate section." Attention, Ted Turner THE PHONE company wants to get into the entertainment business. Flush with cash, Pacific Telesis Group of San Francisco is eyeing the cable television field as its next area of diversification, according to its new chief executive.

By Louis Trager OF THE EXAMINER STAFF TO HUNDREDS of millions of patrons around the world, McDonald's may be a neighborly, family kind of operation, personified by the friendly clown Ronald McDonald. But to some companies those that have tried to use the prefix "Mc" or "Mac" in their business and product names Ronald is little better than a big bully. After persuading San Francisco's former McSushi restaurant to change its name, McDonald's this month renewed a legal battle with the former McDharma's Natural Fast Foods of Santa Cruz. McDonald's sued in federal court in San Jose because Dharma's owners after losing a trademark-registration attempt, agreeing to drop the "Mc" and accepting compensation left the prefix on its sign and superimposed the "circle-slash" international symbol for "not." The fast-food giant has gotten into more than 50 such battles since 1975, according to Adweek magazine. Many more cases are resolved without formal proceedings, said John Horwitz, McDonald's senior corporate attorney.

The long arm of company lawyers has reached to neighbors of the Oak Brook, Ill-based McDonald's as well as businesses in Australia, Yugoslavia and Israel. The company is taking on McSleep, a lodging concept, Molly McButter, a butter substitute from Alberto-Culver and McTravel, a Chicago travel agency, in pending lawsuits. The owners of those names, naturally, think McDonald's has gone too far. "McDonald's is just this big, giant bully," said Robin Holler, a spokeswoman for Quality Inns International, itself hardly a mom-and-pop operation. Holler's company is suing McDonald's for alleged harassment in Quality's proposed "We're looking for businesses that are closely allied to our skill set," says Sam Ginn, who was named CEO of the parent company of Pacific Bell at Telesis' annual meeting on Friday.

Cable TV, he Tandy Corp. demonstrated the principle again last week when it announced it had developed the technology to record and erase information on a compact disc. Such a task has long seemed near-impossible. A single company that pulled it off would be greatly enriched and its reputation and profits would soar. But here's the catch.

Tandy also said products based on its invention are at least a year and a half to two years away. Not only that, few high-tech companies are known for their punctuality. Preannouncements happen all the time in the electronics industry. They are so common that observers frequently anticipate delays in delivery of the actual product. In the software business, a term even has been coined to describe promised but unfinished products "vaporware." But unfulfilled promises can harm both companies and technologies, industry observers say.

Competitors can be driven from a business preemptively. Startup firms may have difficulty raising venture capital to develop a product in the same category. Moreover, a company that fails to live up to its promise can damage its reputation, even in areas where it has been successful. Furthermore, preannouncements can raise consumers' expectations, then, when a product is delayed or the promise unfulfilled, dump them rudely. When the item eventually reaches the market, it might generate much less excitement than it deserves.

Deciding when to announce a new product is one of the most difficult strategic moves a high-tech See PR, D-4 says, fits that description because it has something to do with Telesis specialty, telecommunications. How much is Telesis willing to spend? The sky 8S apparently is the limit, suggests Donald Guinn, the retiring chairman and CEO. Says Guinn: "We have enough cash internally and enough credit with our banks to take care of our needs." 3 Compiled by Paul Farhi of The Examiner staff 1 Inside trading on McDonald good name was the furthest thing from their minds. Quality Inns and McTravel say they were really exploiting the stereotype of Scottish stinginess when they christened their off-price products. But McDonald's has two overarching motives in dealing with trademark problems.

One is protecting its reputation for quality hy guarding against consumer confusion, Horwitz said, and the other is "policing" its marks, so they don't turn into unprotected generic terms under a legal doctrine of "use it and protect it or you lose it." Legal experts agreed that such See MC.D-5 Jay Kaplan pageD-2 John Crudele pageD-2 Ask Dvorak pageD-3 Inside Silicon Valley pageD-3 ExaminerPaul Glines Andy Tonozuka changed the name of his Valencia Street restaurant from McGushi.