K-Line and Lionel: Lawsuit settled

[Anonymous]

Rumor has it that K-Line and Lionel settled yesterday. [:)]

Any truth to that rumor?

Anyone have any info?

[Bob Keller]

We've had a pretty detailed summary of the reported settlement, and as soon as we can confirm it, we'll get it on line.

[Anonymous]

Lionel Settles K-Line Trade Secrets Lawsuit
08/10/2005
FOR IMMEDIATE RELEASE

COMPANY CONTACT:
Mark Erickson
[phone] x 1467
Lionel L.L.C.

MEDIA CONTACT:
Hollis Rafkin-Sax, 212-850-5789, or
Kristin Celauro, 212-850-5652,
Financial Dynamics

LIONEL SETTLES TRADE SECRETS LAWSUIT
K-Line Admits Using Lionel’s Technology and Consents to Permanent Injunction

Chesterfield, Michigan — August 10, 2005 — Lionel L.L.C., the nation’s number one model train maker, today announced that it has reached a settlement with K-Line Electric Trains, Inc. in a trade secrets lawsuit brought by Lionel. Under the terms of the settlement, K-Line and the other defendants, Maury Klein and Robert Grubba, admitted that they paid Lionel’s chief engineer to develop advanced versions of Lionel’s operating systems and features that were used in a number of K-Line’s engines and electrical transformers. They further admitted that these products actually contain Lionel’s technology and are currently for sale in the marketplace.

As part of the settlement, K-Line agreed to the entry of a permanent injunction that requires them to stop selling all products that use Lionel’s technology by the end of its 2005 fiscal year, and to pay Lionel a royalty on all of those products sold during that time. Lionel did not insist on the immediate recall of K-Line’s engines and transformers already in the marketplace, as it had requested in its original complaint. In addition to the royalty, K-Line also agreed to reimburse Lionel up to $700,000 for its legal and related costs.

In late July, Lionel filed a complaint in the United States Bankruptcy Court for the Southern District of New York against K-Line, its owner Maury Klein and Robert Grubba, a former Lionel employee now working for K-Line. The 105-year-old model train maker claimed that the defendants had enlisted Marty Pierson, then Lionel’s employee and chief engineer, to work surreptitiously with K-Line, and incorporate Lionel’s current sound, speed control and electrical transformers into some of the K-Line products. The complaint alleged trade secrets, copyright infringement and tortious interference with contract claims.

“We’re very pleased with what happened today. This outcome makes it clear that we will not tolerate the kinds of behavior that forced us to take this action,” said Jerry Calabrese, Lionel’s CEO. “That said, we’re happy we could spare the model train business a protracted legal action and get on with our real business of making trains.”

Calabrese added, “We did not insist on our original request for a recall of K-Line’s products already in the market because we were concerned that doing so could have caused a hardship for retailers so close to the critical Christmas selling season. More important, this action wasn’t about money. It was about making clear to the world that K-Line’s new and sophisticated technical features were really the property of Lionel.”

Under the terms of the settlement, K-Line agreed to a permanent injunction on the use of Lionel's technology, and renounced any claims to the improperly acquired Lionel intellectual property. Finally, Klein and Grubba agreed to be jointly and severally liable for the money damages awarded to Lionel.

Lionel L.L.C. is one of the world’s leading marketers of model trains and accessories. Established in 1900, the Lionel name is the most widely recognized brand in the toy train industry and one of the most recognized brands in America. Lionel has been at the center of every major innovation in toy train manufacturing and marketing since its inception.

# # #

[Anonymous]

Already a done deal. That sure didn't take long!

[Buckeye Riveter]

I would assume that Lionel had a paper trail and other evidence that was very strong. When I read the allegations, I thought Lionel would have been crazy to make such statements if they did not have very strong supporting documentation including a strong timeline of events, but as we know there are those individuals and companys (not just toy train companys) that will say anything to make a buck. [:(] Can you say ENRON?

Next question, if you have a K-Line engine with the Lionel technology, who is going to fix it when it breaks? Is this a class action suit by the customers in the making? [:0] [}:)] Oops, I'm sorry I suggested that! [:D]

[Anonymous]

Hi everyone,

The latest information from both Lionel and K-Line has been put together in a single story on CTT's home page. There's a link to the story from the middle portion of the page.

Neil Besougloff
editor, CTT

[Anonymous]

While it's nice to see this thing settled--and quickly--my guess is that in the long run it will spell the end of K-Line as a leading force in the O gauge market. It all sounds very nice on the surface, of course--that's how each side would naturally spin it to their consumers--but I'll bet there's a whole lot going on beneath the sugar-coated words of the resepctive press releases that few, if any, here will ever really learn about.

That said, I will continue to support K-Line, Lionel, and all the rest with my purchases for as long as they continue to offer products that interest me. Ande, hopefully, some lessons are being learned from all of this.

[nblum]

I think this settlement contains more than meets the eye at first glance. It appears to leave both companies intact and co-developing command control technology with cross licensing. To me, other than the key result of a rapid and mutually agreeable settlement of a dispute,
the big news for the industry and hobby is this agreement for K-Line's new technology, at least as far as the future is concerned.

[eZAK]

This is good for the hobby as a whole!

I also think that this settlement was indeed a good move for K-line & Lionel, and K-line should benefit from this in the long run.

Q: How long will it take for the MTH fan club to balk at the statement that Lionel is #1?

[okiechoochoo]

I wonder how much of a blow $700,000 is to K LIne. Also, I was fully behind Lionel in the MTH case but now, with certain parties being obviously guilty here and being involved with Lionel in the other case, I am changing my mind. I think this bodes well for MTH and their case. I think Lionel may have won here but will loose the whole 40M on appeal.

[Anonymous]

Q: How long will it take for the MTH fan club to balk at the statement that Lionel is #1?

Actually the statement:

Lionel has been at the center of every major innovation in toy train manufacturing and marketing since its inception.

was the one that offended me, until I realized It is literally true, sometimes as the innovator, sometimes as the trade secrets thief.

[nblum]

A good outcome for both companies, in all likelihood. Several millions of dollars
and several thousands of employee hours not wasted on taking this into court over
the next few years.

And an actual agreement to co-develop a new technology that K-line has patented. That's
probably a first in the 105 years or so of this industry.

[trigtrax]

Q: How long will it take for the MTH fan club to balk at the statement that Lionel is #1?

I'd say as soon as the next financial filing is made in Bankruptcy court [dinner]

[3railguy]

QUOTE: Q: How long will it take for the MTH fan club to balk at the statement that Lionel is #1?

They've been balking about it on the AOL Lionel message board for years. They just can't stand it.

[Anonymous]

Hello All: Good to see people work things out, rather than fight it out. Regards Steve

[Anonymous]

I'm glad to see that this mess is finally over and hasn't resulted in all the bitterness and anger that the MTH vs. Lionel lawsuit has. I think that the settlement sounds like a very fair one and am glad that they were able to come to a mutual agreement.

[AntonioFP45]

Wise business move on the part of both parties. Would have likely been very costly had this been dragged out in court over the usual 1 to 3 years it takes to settle cases like this.

Hopefully K-Line will continue and both companies will move forward with producing quality trains. Wouldn't want to see either company go out of business.

Buckeye Riveter,

you bring up a very good point. I'm no lawyer but it's very likely that if indeed, certain K-Line units have Lionel technology then Lionel and K-Line will work that out in the settlement as well since this would be a warranty and parts issue.

However, If K-Line already has an agreement with parts suppliers, Lionel may just leave well enough alone since K-LIne is already paying the price to Lionel.

Just my $.02

Roger that.

[Anonymous]

QUOTE:

Q: How long will it take for the MTH fan club to balk at the statement that Lionel is #1?

I don't imagine they're all that concerned. After all, Lionel is in bankruptcy; MTH isn't. That's just a fact, and it pretty much speaks for itself. Besides, the sugar-coated spin applied to most pr releases is just that, and nothing more. All firms do that. Even K-Line tried to put the best face possible on things in its release, making it appear that the two competitors are now buddy-buddy. Time will tell!

[brianel027]

It all sounds very nice on the surface, of course--that's how each side would naturally spin it to their consumers--but I'll bet there's a whole lot going on beneath the sugar-coated words of the resepctive press releases that few, if any, here will ever really learn about. - Allan Miller

I agree with Allan's statement here. I too am rather surprised at how quicky an "agreement" was reached and announced. But here's an interesting bit from the CTT homepage story:
Klein, in a telephone conversation with Classic Toy Trains on Wednesday afternoon, just hours after Lionel’s announcement, said that some of the information contained in Lionel’s press release was incorrect.

In a situation where everything is just fine and dandy, I don't understand why someone would want to openly be criticial of the opposing party's statement. As Allan said, I'm sure there's much more blowing in the "Prairie Wind" and the rest of us will find out as the current settles. Anyone who knows K-Line knows that it is Maury Klein's company, pure and simple. He may not be a train guy like many of us, but he sure is a shrewd businessman. I cannot image he willingly enjoys being personally liable for any portion - large or small of $700,000. especially when part of the supposed wrongdoing was from a guy who wasn't even a real employee of MDK.

I do find it personally amusing that most of the legal problems going on in the 3-rail train business relate directly to technology that serves the high-end minority of the train market. But this is also the audience that the train companies are walking all over each other trying to court. Sure, there's Train-19 and the Husky Line. But there's nothing new about Train-19 with mostly roadnames that appeal to people who were kids 50 years ago. Same goes for the Husky Line with roads from 50 years ago and rolling stock modeled after cars from almost 100 years ago. But there was no real development costs, no real risk or outlay other than the actual production runs. So the real money can go into courting the ever shrinking adult market in an ever more hostile competitive market.

So we'll see how the agreement plays out over time. As they say "It ain't over until the fat lady sings."

In this case, it's an overweight guy who forgot to bathe and he'll be singing up a storm at the various booths about poor chuff rate, missing rivets, availability of hi-tech upgrades and unprototypical headlight placment at YORK.

Glad I'm gonna miss that concert!! I don't mind unprototypical rivet counts and the MPC Mechanical Sound of Steam pleases me just fine. And if I had $1,000.00 to spend on a single train engine, I'd really have $900 to give to the poor and the needy.

[Anonymous]

"And if I had $1,000.00 to spend on a single train engine, I'd really have $900 to give to the poor and the needy."
----------------------

I'm with you on that one, Brian! If I had a spare grand laying around, it sure wouldn't be spent on a high-priced (most likely overpriced) O gauge locomotive. I have yet to see one that was worth that kind of money (strictly my own opinion, of course).

I'm continually amazed at how much disposable income people have available to devote to high-end toys. Leaves little doubt in my mind why so many don't seem to be bothered by gas prices that will undoubtedly be up to $4 a gallon in the not-too-distant future. And yet many of these same people who stock-up on $1,000 toy trains and who gas-up their SUVs a couple of times a week will still flock to Wally World to save a buck. It's a very strange society that we live in these days!

[prewardude]

QUOTE: Originally posted by brianelO27
So we'll see how the agreement plays out over time. As they say "It ain't over until the fat lady sings."

In this case, it's an overweight guy who forgot to bathe and he'll be singing up a storm at the various booths about poor chuff rate, missing rivets, availability of hi-tech upgrades and unprototypical headlight placment at YORK.

LOL! Good one, Brian! [:D]

[cheese3]

I am glad to see the lawsuit is over, I can get back into toy trains again!