Appeals Court Report

[nblum]

OK, that's clear. Message received.

[Anonymous]

Guys,

The CTT forum exists to exchange information about toy trains and to show newcomers that our hobby is vibrant. Arguing about the corporate actions of MTH and Lionel does neither. If you need to vent about the patent lawsuit, you'll have to go elsewhere.

Thanks,
Neil Besougloff
editor

[nblum]

MTH has posted a timeline of legal machinations that tells us next to nothing about what really happened in the industry. Here's an alternate timeline of the events relevant to Lionel and MTH's relationship:


1995--MTH makes better detailed and varied locos at better prices, experiences great sales growth

1996--Lionel introduces TMCC

1998--Lionel begins making more scale products and prices begin to moderate

2000-Lionel licenses TMCC to others

2000-MTH's sales begin to tank, sues Lionel for "trade secret" violation

2000--Lionel's price begin to moderate even further as more production moves abroad

2000--MTH introduces PS2, a major step forward for them but procedes to shoot
themselves in the foot by (1) not having DCS available and (2) retaining the battery design just when it begins to appear that PS1 is an accident waiting to happen

2002-DCS is introduced, but is really only useful for those deeply into PS2 and is a good but rather flakey system

2006--MTH's sales are now less than half what they were at the peak. Ain't that too bad? Blame someone else for your failures, and sue them if you can.

[Anonymous]

QUOTE: Originally posted by tsgtbob
I have said this on other forums, I'll say it again here; Makes me want to go back to HO!

When you do, take a look at the MTH HO K-4.

[MartyE]

I tend to agree. Let it roll on. For the most part it has stayed pretty true to subject and nobody is getting hurt. Everyone is being adults.

[trigtrax]

Well there are now a whole new batch of lawsuits and press releases to squabble over. I'm figuring at least 4 years worth. [:(]
I will return with more comments in the year 2009, until then I'll be polishing my concrete.

[Poppa_Zit]

QUOTE: Originally posted by tsgtbob

Will the moderator please either lock this mess, or, will the posters get back on track?
(Thanks Bob)
I have said this on other forums, I'll say it again here; Makes me want to go back to HO!

Whoa, now!

So if this cogent discussion on Court Appeals and their salient ramifications bothers you so much, why not just skip to the next thread instead of trying to have a moderator shape the forums to your personal liking? What's the big deal? Having a bad day? Jeez, go sit in a recliner and chill out, willya?

I think some interesting points are being made as part of a civil discussion.

I have said this on other forums, and I'll say it here; makes me hope guys like you go back to HO! [:D]

[tsgtbob]

Will the moderator please either lock this mess, or, will the posters get back on track?
(Thanks Bob)
I have said this on other forums, I'll say it again here; Makes me want to go back to HO!

[Poppa_Zit]

QUOTE: Originally posted by trigtrax

You mention an HO company passing on the License cost and it being expanded through wholesale to retail and you don't want to accept that for O-Gauge. In general a manufacturer multiplies his cost by some number and that sets the MSRP. It's certainly likely if cost goes up one dollar MSRP can go up by $5. This is what Mike Wolf told me he wants to avoid and I don't blame him.

Was this reply meant for me? Because what you are describing is not at all what I wrote.

Let me repeat: I don't accept any "expanded" add-ons for licensing fees other than the direct cost of the fee. Period. The so-called additional accounting work is negligible in volume orders, to be considered "the cost of doing business."

If the licensing fee is $1.20 actual per unit, raise the wholesale by $1.20 per unit.
This add-on shouldn't be construed as an invitation for everyone else down the distribution line to get fatter without doing any additional work. Sorry, but that's where we disagree.

[trigtrax]

You mention an HO company passing on the License cost and it being expanded through wholesale to retail and you don't want to accept that for O-Gauge. In general a manufacturer multiplies his cost by some number and that sets the MSRP. It's certainly likely if cost goes up one dollar MSRP can go up by $5. This is what Mike Wolf told me he wants to avoid and I don't blame him.

[Poppa_Zit]

QUOTE: Originally posted by Poppa_Zit

The up-charge would not be five bucks. It would be no more than a dollar and maybe some change, if I recall correctly what I read, and those formulas seem to have now disappeared from the UP website. But I noticed in a recent Athearn ad they were charging $5 more for UP locomotives, so I guess some manufacturers just decided to add the buck, buck-twenty for UP and round up to the next $5

QUOTE: Originally posted by trigtrax

Yes, and the amount of zinc and steel that makes a replacement coupler truck may amount to less than a quarter. But the List price is $10. People need to understand that a manufacturered item must have a price many times the cost of what it takes to make it. Everybody that deals with it between the time the raw material is delivered and you run it on your layout likes to eat. You can't separate out the cost of a license and tell the hobby shop owner his margin is on the train but not the logo. The world doesn't work that way.

Well, I disagree. We're talking about a $5 upcharge for the license ONLY in this case. Which has NO relationship whatsoever with cost of the raw materials and production, as you say. Any manufacturer who would add $3.80 per piece (to the $1.20 UP licensing fee) for his additional accounting costs and whatnot is screwing the consumer. MTH (or Athearn, or whoever) needs $3,800 to do the additional accounting on, say, 1,000 identical pieces? Baloney. That's why the government pays $200 for a hammer.

Everyone in this case is totally aware of UP's licensing fee. For a manufacturer to add something (not necessarily $5) to the final wholesale cost is somewhat expected, and by most hobbyists, considered acceptable. Then, it is up to the hobby shop owner to decide whether adding his own "vig" to the upcharge is necessary and will be tolerated by his customers. If the manufacturer, distributor and hobby shop owner all did as you say, UP-logoed stuff would cost as much as $12-$15 more than other like-pieces in different paint. Making sound decisions is how successful business is done. Business owners have to make choices every day, and whether to "pass thru" the UP upcharge untouched is one such decision. Like they're not already making a profit on the locomotive itself. That's not enough? The licensing fee requires no additional effort by the hobby shop owner, so how can he justify adding his own fee to the licensing cost?

And here's the way the world really works, not like in the Business 101 textbooks: No one except a moron lists MTH or Lionel or any toy trains at MSRP if they hope to stay in business. Check the prices at your local hobby shop, where the owner has to factor in his brick-and-mortar overhead when he applies price stickers. Then check out the discount houses on the Internet. Wow, some difference, eh?

I own a business and as is done in my industry we established our rates for the 2006 calendar year last fall. Now that my shipping costs have increased 30 percent thanks to rising gasoline costs and shipper surcharges, I have to eat that extra 30 percent expense. I have no choice. Fact is, you can't pass everything down the line all the time if you hope to stay in business.

If things worked in the world the way you say, then they would work in reverse, too. So if and when Mike's Train House receives the $41 million from Korea Brass and Lionel, he's going to slash prices for his products? Don't hold your breath.

[trigtrax]

The up-charge would not be five bucks. It would be no more than a dollar and maybe some change, if I recall correctly what I read, and those formulas seem to have now disappeared from the UP website. But I noticed in a recent Athearn ad they were charging $5 more for UP locomotives, so I guess some manufacturers just decided to add the buck, buck-twenty for UP and round up to the next $5

Yes, and the amount of zinc and steel that makes a replacement coupler truck may amount to less than a quarter. But the List price is $10. People need to understand that a manufacturered item must have a price many times the cost of what it takes to make it. Everybody that deals with it between the time the raw material is delivered and you run it on your layout likes to eat. You can't separate out the cost of a license and tell the hobby shop owner his margin is on the train but not the logo. The world doesn't work that way.

[Anonymous]

The paperwork/book-keping and the requirement of liability insurance are what kills most licensing deals. The later is particularly odius in that you are buying insurance to protect them from a lawsuit that they wouldn't be involved in if it weren't for the license deal. On a current Registered Trademark there isn't much choice. They have to protect the mark and you have to get a license and so forth and so on. On the fallen flags UP has admitted they view this as a potential revenue stream. If they are so interested in making money off of the fallen flags, they should start making this stuff themselves.

[PaulEFudd]

The Santa Fe RR once paid Lionel $7,000 to put their logo on Lionel trains - in the 1950s I believe. I have to wonder if lawsuits were as common back then as they seem to be now. I have a hunch there are quite a few more lawyers percentage-wise as compared to back then.

Paul

[nblum]

Frankly, I'd be more inclined to trust what Jerry Calabrese says more than I'd trust the UP at this point, but that's just me. ;)

[Poppa_Zit]

QUOTE: Originally posted by nblum

Actually, Jerry Calabrese has stated that the problem isn't the request for royalties. My understanding (and words, not Jerry's) is that the problem is the one-sided, onerous and uncollegial requirements that UP insists on using in its contract. The boiler plate agreement as it stands apparently leaves the licensee open to all sorts of problems and risks, yet requires unrealistic and extortionate record keeping requirements on the part of the licensee.

Funny thing is I hear Lionel has some interesting hoops to jump through for anyone wanting to license the Lionel name for a product.

Lionel has also applied for and been granted a trademark for the colors orange and blue on packaging containing model railroading products.

[nblum]

Actually, Jerry Calabrese has stated that the problem isn't the request for royalties. My understanding (and words, not Jerry's) is that the problem is the one-sided, onerous and uncollegial requirements that UP insists on using in its contract. The boiler plate agreement as it stands apparently leaves the licensee open to all sorts of problems and risks, yet requires unrealistic and extortionate record keeping requirements on the part of the licensee.

[Poppa_Zit]

QUOTE: Originally posted by trigtrax

"UP painting "Heritage" locos with logos of fallen flags in this era seems to be an effort to "create evidence of use" ex post facto. It'll be interesting to see how the court sees it."

That is not their problem. Their trains have been modeled for decades and they have never sought compensation or attempted to protect their trademark. Under the law their trademark can be considered abandoned and in the public domain. That is the most likely reason for the MTH motion of summary dismissal of the case. UP is trying to get agreements from all manufacturers to pay them to reinstate their trademark rights. MTH will never sign up for this. Mike Wolf says he can't charge $5 more for a UP caboose than a PRR one so he's not going along. Lionel's case is stalled in Bankruptcy Court and Williams hasn't been involved yet. Only Atlas O has signed up and if Mike wins they are stuck with a cost they don't need.

My opinion is that UP should not be able to demand royalties ex post facto on fallen flags it has acquired and no longer actively operates as railroads under those names, which agrees with case law.

But let's not make Union Pacific out to be a villain for trying to protect the UP logo and colors currently in use. That's its choice, and a court will decide, not a bunch of grumpy old men who spend most of the day complaining with their computers.

The up-charge would not be five bucks. It would be no more than a dollar and maybe some change, if I recall correctly what I read, and those formulas seem to have now disappeared from the UP website. But I noticed in a recent Athearn ad they were charging $5 more for UP locomotives, so I guess some manufacturers just decided to add the buck, buck-twenty for UP and round up to the next $5 -- at which point yes, it becomes an issue.

Maybe Mike is using the five dollar figure to garner sympathy and/or support. Five bucks sounds a lot worse than $1.20 or so. But he doesn't have to continue making the stuff, and nobody has to buy it.

Also, Mike Wolf has no more right to make a living than UP.

[Anonymous]

"I want to say I think the C&O logo was on a rail overpass over Edward Hines Drive in a park-like setting. Could that be the place? I try to take photos of fallen flag logos on bridges, etc. because they probably won't be around much longer."

Tracks do cross Hines drive in a couple of places in the Plymouth area, both the N/S and E/W lines. I'll pay a little more attention next time I'm drivinf through. I think the bridse(s) have the CO Progress marks on them.

[trigtrax]

"UP painting "Heritage" locos with logos of fallen flags in this era seems to be an effort to "create evidence of use" ex post facto. It'll be interesting to see how the court sees it."

That is not their problem. Their trains have been modeled for decades and they have never sought compensation or attempted to protect their trademark. Under the law their trademark can be considered abandoned and in the public domain. That is the most likely reason for the MTH motion of summary dismissal of the case. UP is trying to get agreements from all manufacturers to pay them to reinstate their trademark rights. MTH will never sign up for this. Mike Wolf says he can't charge $5 more for a UP caboose than a PRR one so he's not going along. Lionel's case is stalled in Bankruptcy Court and Williams hasn't been involved yet. Only Atlas O has signed up and if Mike wins they are stuck with a cost they don't need.

[Poppa_Zit]

QUOTE: Originally posted by chuckn

Main line is the EW. I've seen a lot of CP Rail through traffic as CSX now uses the old Detroit River Tunnel (former NYC). Lot's of containers going from Eastern Canada to Chicago. A lot of grain trains come on the E/W line and turn south at Plymouth. Big unit coal drags go the other way. Strict N/S stuff isn't as common. Diamond is pretty big and the old Round house in near the north east corner. It is probably most viewable from the St. Johns golf course. Security in the area has been high for the 25 years I've lived in Plymouth. Chessie System used to ocassionaly run open houses in conjunction with train shows held at the Civic Center/Hockey rink. There even had a Geep opened up and let civilians walk on/around her. Those days are long gone.

I want to say I think the C&O logo was on a rail overpass over Edward Hines Drive in a park-like setting. Could that be the place? I try to take photos of fallen flag logos on bridges, etc. because they probably won't be around much longer.

[Anonymous]

Main line is the EW. I've seen a lot of CP Rail through traffic as CSX now uses the old Detroit River Tunnel (former NYC). Lot's of containers going from Eastern Canada to Chicago. A lot of grain trains come on the E/W line and turn south at Plymouth. Big unit coal drags go the other way. Strict N/S stuff isn't as common. Diamond is pretty big and the old Round house in near the north east corner. It is probably most viewable from the St. Johns golf course. Security in the area has been high for the 25 years I've lived in Plymouth. Chessie System used to ocassionaly run open houses in conjunction with train shows held at the Civic Center/Hockey rink. There even had a Geep opened up and let civilians walk on/around her. Those days are long gone.

[Poppa_Zit]

QUOTE: Originally posted by chuckn

"BTW, is there a set of diamonds in Plymouth near a restored freight house and a railroad-themed restaurant? I seem to remember taking pictures there awhile back. Also, an overpass with a painted C&O logo still on it."

There is a diamond, it is actually oriented NS/EW, here is a link to a web site featuring the diamond:

http://members.aol.com/jsundin357/plydiam.html

Restaurant is Station 885

http://www.plymouth48170.com/gen_info/p48170_dining2.asp?QUE=200500002

The North South leg of the tracks that run through Plymouth crosses a local highway (M-14) just north of the diamond. I believe this may be the bridge you are referring to but there are several more that are visible from the road that runs parallel to the tracks. "Northville Road" runs from Plymouth to the next town North, Northville.

Yeah, that's the place. Sat there in the restaurant parking lot (that is where someone said they won't bother you) for about three hours and saw nothing on the East/West CSX line, and plenty of action going N-S, of course. But the N-S main was too far away for decent pics, plus the view from the parking lot was obscured by weeds and scrub trees. Maybe the nexy time I go to Oakland Hills GC I'll try again.

[Anonymous]

"BTW, is there a set of diamonds in Plymouth near a restored freight house and a railroad-themed restaurant? I seem to remember taking pictures there awhile back. Also, an overpass with a painted C&O logo still on it."

There is a diamond, it is actually oriented NS/EW, here is a link to a web site featuring the diamond:

http://members.aol.com/jsundin357/plydiam.html

Restaurant is Station 885

http://www.plymouth48170.com/gen_info/p48170_dining2.asp?QUE=200500002

The North South leg of the tracks that run through Plymouth crosses a local highway (M-14) just north of the diamond. I believe this may be the bridge you are referring to but there are several more that are visible from the road that runs parallel to the tracks. "Northville Road" runs from Plymouth to the next town North, Northville.

[Poppa_Zit]

QUOTE: Originally posted by chuckn

"UP painting "Heritage" locos with logos of fallen flags in this era seems to be an effort to "create evidence of use" ex post facto. It'll be interesting to see how the court sees it."

Court ain't buying it. They've already expressed their concerns over what they perceive as abuse of the trademark rules to cover crap like this.

Good. I think they should do any future "Heritage" repaints more like the original paint jobs and logoing, instead of the modernistic "op art" stuff they're doing. Might make a few railfan photographers happy and be good PR -- if they're really doing it out of a sense of history, that is, and not to fool the court.

BTW, is there a set of diamonds in Plymouth near a restored freight house and a railroad-themed restaurant? I seem to remember taking pictures there awhile back. Also, an overpass with a painted C&O logo still on it.

[Anonymous]

"UP painting "Heritage" locos with logos of fallen flags in this era seems to be an effort to "create evidence of use" ex post facto. It'll be interesting to see how the court sees it."

Court ain't buying it. They've already expressed their concerns over what they perceive as abuse of the trademark rules to cover crap like this.

[Poppa_Zit]

QUOTE: Originally posted by chuckn

UP suing over current trademarks is completely legitimate and unfortunately necessary. UP suing over trademarks from Fallen Flags that they went out of their way to erase from the face of the earth is extortion. They've now tired the gambit of painting a few modern locomotives in Fallen Flag legacy paint schemes to "resurect" the brand identity. It would probably serve them right if someone sues them over something one of these fallen flag's were responsible before aquisition and erasure. Court rulings regarding these attempts have all been kicked yet they (UP) keep plugging away. They've probably now spent more on filing/legal fee's and paint jobs than they would have hoped to recover from a licensing program.

UP painting "Heritage" locos with logos of fallen flags in this era seems to be an effort to "create evidence of use" ex post facto. It'll be interesting to see how the court sees it.

[Anonymous]

UP suing over current trademarks is completely legitimate and unfortunately necessary. UP suing over trademarks from Fallen Flags that they went out of their way to erase from the face of the earth is extortion. They've now tired the gambit of painting a few modern locomotives in Fallen Flag legacy paint schemes to "resurect" the brand identity. It would probably serve them right if someone sues them over something one of these fallen flag's were responsible before aquisition and erasure. Court rulings regarding these attempts have all been kicked yet they (UP) keep plugging away. They've probably now spent more on filing/legal fee's and paint jobs than they would have hoped to recover from a licensing program.

[Poppa_Zit]

QUOTE: Originally posted by Allan Miller

Well, I wouldn't say that UP is picking on MTH. They're picking on everybody, without favoritism. At least MTH hasn't, to the best of my knowledge, caved in to their extortion. I could be wrong about that, but I assume if I am wrong, there would be no legal action in the first place.

You guys are so funny whenever you pop your heads out of Fantasyland.

UP isn't "picking" on everybody any more than MTH is "picking" on Lionel. UP is attempting to defend its property (trademarks) against companies who blatantly use it to make a profit without a contract or proper compensation to UP. (Fact, not my stance or opinion. Remember, I'm neutral.)

Three defendant companies (MTH, Lionel and Athearn) -- not "everybody" as you say -- were named in suits filed by UP. I wonder how that verdict would turn out if they presented the case to the same jury that awarded the $41 million. The premise of the two cases is pretty similar.

In Fantasyland, it is okay that MTH sues Lionel seeking justice. But on the other hand, UP suing MTH for "stealing" [to use Fantasyland terminology] is considered "extortion." [(-D] [(-D] [(-D] [(-D] [(-D] [(-D]