MTH Press Release:

Lionel Trains, LLC found liable for misappropriation of Trade Secrets and awards MTH Electric Trains $40,775,745.00

Columbia, Maryland, June 7, 2004 --- The federal court case between M.T.H. Electric Trains and Lionel Trains, LLC concluded on June 7, 2004 with a verdict in favor of the plaintiff, M.T.H.  Lionel and its co-defendants were found liable on MTH’s claims of misappropriation of MTH’s trade secrets.  The jury also found that defendant’s actions were willful and malicious.  The jury awarded M.T.H. damages in the amount of $40,775,745.00.  The verdict was broken down as follows: MTH’s Past Lost Profits $11,978,887.00, MTH’s Future Lost Profits $13,794,598.00, Lionel unjust enrichment $12,834,820.00, and Korea Brass and Mr. Yoo Chan Yang unjust enrichment $2,167,440.00.

M.T.H. filed the suit in April 2000, after learning that Lionel’s South Korean subcontractor, Korea Brass, had acquired and used drawings & plans from M.T.H. subcontractor Samhongsa to design and manufacture model trains for Lionel.  The suit alleged that Lionel violated Michigan trade secret law by using M.T.H.’s designs to develop - in a very short period of time - die-cast “O” Gauge scale steam locomotives to the quality it previously had never before produced.  The suit specifically asserted that Lionel and co-defendants Korea Brass and Yoo Chan Yang (the U.S. commissioned agent for Korea Brass) knew or had reason to know that the Lionel trains were designed and manufactured using M.T.H.’s trade secrets and had and used MTH’s Production Schedule information.  M.T.H. claimed it suffered substantial financial damages and profit erosion.

The case, which spanned two continents, centered around Lionel’s knowledge of the origin of the plans and trade secrets illegally appropriated from Samhongsa between 1997 and 2000.  Several Korean individuals were convicted of these thefts and sentenced to jail for their actions.  Korea Brass was found liable to Samhongsa in a civil suit that developed as a result of the Korean events and subsequent convictions.  The federal Judge presiding over the U.S. case, the Honorable John Corbett O’Meara, found each of these Korean events relevant to the U.S. case and allowed them in as evidence.

Hundreds of exhibits were submitted during the four-week trial including copies of emails between the defendants, computer files seized as evidence that showed that M.T.H. files existed on design disks that were provided to Lionel, and expert testimony from professionals certified to render opinions on Korean trade secret law, product design, and economic harm to MTH.

Throughout the four-year ordeal, M.T.H. Electric Trains focused on incorporating new efficiencies into its overseas and domestic operations in order to remain competitive with what was becoming a more aggressive Lionel product line.  Despite the loss of revenue resulting from the trade secret thefts, M.T.H. has been able to expand its product line, infuse new technology into its products, and maintain the interest and excitement of the model train marketplace with new releases and marketing initiatives.  Today M.T.H. remains profitable, efficient and innovative in ways many its competitors have been unable to match.

“Despite the wishes of some model railroading enthusiasts that pursuing a lawsuit against Lionel wasn’t in the best interest of the hobby, I felt our firm had no choice but to seek justice against those who wronged us,” stated M.T.H. President Mike Wolf.  “We stand by our conviction that the loss of these trade secrets benefited our competition”, he added.  “We believe in pursuing our legal rights and felt that a court challenge was the right thing to do.  Laws protecting innovation and the development of new technological improvements ensure that manufacturers will keep investing in their products.  Ultimately those improvements provide consumers with better choices, operating features and overall product value.  The federal court in Michigan agreed that enough merit existed in our case to proceed to trial, and the jury rightfully found the evidence compelling enough to warrant a verdict in our favor.  The award simply reinforces the seriousness of this type of business conduct and should serve as a strong reminder that firms can’t look for shortcuts or thumb their nose at ethical business practices.”

M.T.H., with the case now behind it, will continue to forge ahead with its expansion plans in the HO, One-Gauge and O Gauge markets.  The company’s next One-Gauge catalog is scheduled for shipment in July and a new full-line O Gauge catalog will be released in October of this year.


Posted June 22, 2004