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Mike’s Train House v. Lionel, L.L.C.
No end in sight for clash of toy train companies
Lionel's trade-secrets case drags on
July 28, 2007 Somewhere up in roundhouse heaven, the 19th-Century railroad barons who fought ruthlessly for coast-to-coast dominance must be shaking their heads over the great modern day courtroom clash of the toy train titans.
The trade-secret fight between Chesterfield Township model-train icon Lionel LLC, once the world's biggest toymaker but now in bankruptcy, and MTH Electric Trains, formerly known as Mike's Train House Inc., has generated reams of court filings and countless billable hours for lawyers over design drawings for model trains. They're even fighting over tiny puffs of smoke and sound effects. All of this has dragged on for seven years.
It took six years to finish the transcontinental railroad. When the Union Pacific and Central Pacific tracks met at Promontory Point, Utah, in May 1869, the ceremonial golden spikes were driven and the feat was noted with the telegraphed declaration, "Done."
No one is uttering "done" or anything close to it in the battle for dominance in the world of model trains.
"This litigation could go on for several more years," said Robert Swift, the lead attorney representing MTH. "I don't see an end in sight."
Jerry Calabrese, Lionel's CEO, said, "The MTH guys want their day in court, and so do we."
When that day will come is anyone's guess. This is an outsized legal dispute to gain the commercial affections of an aging North American universe of model train enthusiasts. Some train collectors describe it as men fighting over toys, but they also note there is big money -- estimated worldwide sales of $2 billion annually -- at stake in an up-and-down business that holds nostalgic appeal.
Model train collectors hear the rumble of a fatal collision.
"It's a fight for survival. Whoever loses will probably go out of business," said Tom McComas, a film producer and model train enthusiast in Michigan City, Ind. "They're fighting this with the same venom and animosity of the railroad barons, and it's all over toys."
McComas, who produced a documentary for PBS marking the 100th anniversary of Lionel in 2000, said the model train business is "dwindling. The collectors are dying off and they aren't being replaced at the same rate. ... Kids today don't grow up with Lionel trains."
Still, there is money to be made, especially from men over age 50 who had Lionel trains when they were young and now have more disposable income. At the lower age spectrum, last month's recall of 1.5 million Thomas & Friends wooden railway toys served as a reminder that, as McComas said, "There is still some intrinsic fascination with trains."
The Lionel-MTH battle stems from a 2000 complaint filed by Maryland-based MTH, which sued the 107-year-old Lionel, accusing the company of selling trains based on designs that had been stolen from a South Korean manufacturer that worked for MTH. In 2004, a federal court jury in Detroit ruled that Lionel pay $38.6 million to MTH, while another Lionel supplier pay $2.2 million.
That was roughly 80% of Lionel's annual revenue in 2004. Lionel couldn't afford to pay the penalty and it filed for Chapter 11 bankruptcy later that year.
Lionel appealed the jury decision and, last December, won a reversal from the 6th U.S. Circuit Court of Appeals, which ordered a new trial. In the meantime, both companies are fighting in federal bankruptcy court in New York over how and when Lionel will reorganize and emerge from bankruptcy. That court fight includes a battle over technology that synchronizes puffing smoke and sound effects from trains. A resolution of Lionel's financial liability on the stolen designs doesn't appear close.
Calabrese said that whatever penalty Lionel has to pay, it will be substantially less than the original jury decision because the appeals court criticized the amount of the penalty. Attorney Swift said MTH President Mike Wolf is "the quintessential competitor. He's in this for the long haul."
Lionel’s motion for a new trial
December 14, 2006 R. GUY COLE, JR., Circuit Judge. Defendant-Appellant Lionel, L.L.C., appeals a jury verdict finding it liable for misappropriation of trade secrets and unjust enrichment, and awarding Plaintiff-Appellee Mike’s Train House, Inc. (“MTH”) damages exceeding $40 million. After unsuccessfully moving the district court for a new trial and judgment as a matter of law, Lionel appeals the jury verdict, the district court’s evidentiary decisions, the specificity with which MTH identified its “trade secrets,” the imposition of joint and several liability, and the amount of the damage award. Lionel also appeals the district court’s order granting MTH’s request for an injunction. Because Lionel correctly argues that the district court erred in admitting expert testimony and in imposing joint-and-several liability, and because the jury award improperly “double counts” MTH’s damages, we REVERSE the district court’s order denying Lionel’s motion for a new trial and REMAND this case for further proceedings consistent with this opinion. Because the district court’s injunctiorder as well.