Observations from filings in MTH v. Lionel lawsuit

[Anonymous]

I reviewed and downloaded some of the briefs, filings and orders in the MTH v. Lionel lawsuit which just resulted in the huge verdict in favor of MTH. These are some of my observations (which probably are based on incomplete info, since I haven't seen everything - particularly the evidence at trial, and was not there).

1. This case was very hard fought and bitter. Lots of motions, briefs, charges, countercharges. Two or three experts for each side. More than 40 depositions. Thousands of pages of documents produced.

2. MTH tried to get a preliminary injunction against Lionel producing many products back in 2000 when it commenced the lawsuit, but was denied by the court because of insufficiently compelling evidence and "a concern for imposing the court's will upon the marketplace and the very competitive thin market".

2. Lionel tried mightily to get summary judgment in its favor (winning before the case got to jury trial), but the judge denied the motion in its entirety. Importantly, MTH, as to be expected from a plaintiff, painted its claim with a very broad and vague brush. Lionel tried to show that most of the Lionel product lines that MTH was complaining were the result of the misappropriated trade secrets were not actually produced by MTH (EM-1, Mountain, scale J3a Super Hudson, Junior Hudson), were orginally made for Lionel well before the alleged misappropriation (Mikado, Shay, S-2 Turbine and die-cast caboose), were in the market as MTH products more than a year before Lionel introduced them (virtually everything but the Class A and scale T-1), or were designed or tooled by manufacturers other than Korea Brass (0-8-0, Baby Berk, Camelback, aux. water tenders).

3. The one-year in the market argument relates to MTH's assertion in the lawsuit that it takes one year to design and build a loco from scratch. Thus, Lionel argued that if the loco was in the market for at least a year, Lionel could have used that product in designing its own (and would not have designed it based on misappropriated trade secrets).

4. MTH's sole claim was for misappropriation of trade secrets under the Michigan version of the Uniform Trade Secrets Act. Only "actual loss [incurred by MTH] caused by the misappropriation" and "unjust enrichment [to Lionel] caused by the misappropriation that is not taken into account in computing actual loss." If we are guesstimating correctly the revenues to be expected from the sale of top-line locos by either of these companies (starting from the premise that each company's gross annual revenues are in the $40-$50 million range), the damages awarded by the jury seem grossly overstated and duplicative, particularly in light of the fact that actual loss and unjust enrichment are expressly to be complementary; double-counting is to be avoided. The award of damages further seems to spring from MTH claiming that Lionel's conduct ruined its entire business, rather than just deprived it of profits from the sales of certain locos. Lionel moved to limit the scope and nature of MTH's damages testimony, but the court denied those motions before trial (I don't know how much he let in at the trial, but it must have been everything MTH wanted given the size of the award). One of MTH's economics experts was advancing some sort of "market flooding" theory, but I'm not clear what that entails.

5. Punitive damages are not available as a matter of law and were not sought by MTH in the trial. The finding of "willful and malicious" was the predicate for MTH to get an award of its attorneys' fees. This is to be done by the judge after the jury verdict. MTH may also seek some sort of injunction against Lionel based on the jury verdict, which is for the judge to decide.

6. In defending the validity of its claim that Lionel knew about the misappropriation by Korea Brass, MTH made reference to (among other things)emails to and from Bob Grubba while he was at Lionel.

7. A lot of the evidence and argument went all the way back to the beginning of the relationship between Wolf, Lionel and Koreans back in the late '80s, as well as the change and termination of that relationship in the early '90s. That may explain in part (along with the big dollars) the "passion" (read venom) in connection with this lawsuit.

8. Both Lionel and Korea Brass were found liable for misappropriating trade secrets, and, as it appears from the jury verdict form, they share in the liability to MTH for the past lost profits award ($11.978 million) and the future lost profits award ($13.794 million).

Regards, Tod

[Big_Boy_4005]

Wow Tod, very nice reporting, calm and clear. I don't mean this in a rude way, but are you a lawyer? You seem to have a real understanding here, and I was wondering if that was part of your background. Welcome to the forum.[#welcome]

[eZAK]

If one can observe anything from this it should be that this is not over by along shot.

[Anonymous]

Big Boy, thanks for the welcome. Yes, I am a lawyer who tries business cases in federal court. Being a Lionel Louie, I sorely wi***hat Lionel had retained me to help defend them in this lawsuit. I think I could have helped them. Plus, it would have been a lot of fun to learn the inner workings and financial details of the business. Oh well.

[Anonymous]

Tod

There are always the appeals; send them your CV; good summary;
Welcome and watch out for the lawyer bashing because as we know it is our collective fault that MTH pursued the matter in the first place.

Alan