Toy-Train Titans Near End of Long Dispute

Lionel's 100th anniversary 700E J-1E Hudson engine, in 2000. The company was accused of stealing designs.
Lionel's 100th anniversary 700E J-1E Hudson engine, in 2000. The company was accused of stealing designs. (By Carlos Osorio -- Associated Press)
By Zachary A. Goldfarb
Washington Post Staff Writer
Saturday, October 27, 2007

There's still some smoke, but the clash between the country's two largest makers of toy trains is nearly over.

Century-old Lionel of Chesterfield, Mich., and MTH Electric Trains of Columbia have forged a tentative agreement to settle a multimillion-dollar, seven-year-old lawsuit over allegations that Lionel stole train designs from MTH.

The dispute focuses on a patented computerized technology that synchronizes the sound, smoke and speed of the locomotives as they zoom and puff around the track. The technology is critical to the two companies as they seek a leg up on each other in a small market and try to remake one of America's favorite pastimes for the 21st century.

The settlement should allow Lionel, one of the enduring brands of the 20th century, to escape bankruptcy protection, which it entered while fighting MTH's claims for roughly $88 million.

"We're happy that we've reached a settlement," said Jerry Calabrese, chief executive of Lionel. "It was a long, terrible case. It was a very small industry and a very large lawsuit."

MTH founder Mike Wolf said the two companies are moving closer to putting the dispute behind them but said the settlement is contingent on resolving several other issues. "It's not over until it's over," Wolf said. "We don't like each other. It's personal. It's been very difficult."

The dispute has unnerved toy-train enthusiasts.

It's been "bewildering," said Carl Swanson, editor of Classic Toy Trains magazine. "It's just been such a blizzard of claims and counterclaims."

The clash began in 2000 after Lionel, which had long manufactured its train sets in the United States, began building them in South Korea, where MTH and others made their trains.

Lionel's Korean subcontractor allegedly paid an employee of MTH's subcontractor to steal train designs. The Lionel subcontractor was found guilty in a South Korean court, and MTH sued Lionel in the United States, claiming damage to its business.

In 2004, a Michigan jury awarded MTH $38.6 million in damages. Lionel went into bankruptcy protection. In 2006, a panel of judges on the U.S. Court of Appeals for the 6th Circuit overturned the verdict and ordered a new trial.

Rather than proceed to another trial, though, the companies began discussing a settlement.

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