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Wednesday, March 09, 2005

The Wellspring Era

Lionel changed hands again in 1995, when Kughn sold controlling interest in the company to an investment group that included rock and roller Neil Young and holding company Wellspring Associates. The new company became known as Lionel LLC. The company continued marketing reproductions of its vintage equipment, and the trend towards producing new equipment that was ever-more-detailed (with a correspondingly higher price) continued.

Additionally, Young helped finance the development of Trainmaster Command Control, a technology similar to Digital Command Control which permits, among other things, the operation of Lionel trains by remote control. In order to proliferate this standard, Lionel has licensed it to several of its competitors, including K-Line.

Lionel, LLC continued to manufacture and market trains and accessories in O scale under the Lionel brand and S gauge under the American Flyer brand. While most of the American Flyer product comprises re-issues using old Gilbert tooling from the 1950s, the O scale equipment is a combination of new designs and reissues. Lionel also ventured into HO scale at times during its history, with limited success.

In 2001, Lionel closed its last manufacturing plant in the United States, outsourcing production to Korea and China. While this move proved unpopular with some longtime fans, there was no backlash like the failed move of production to Mexico in the 1980s. The company also licensed the Lionel name to numerous third parties, who have marketed various Lionel-branded products since 1995.

The 2004 Christmas movie Polar Express, based on the children's book of the same name, provided Lionel with its first hit in years. Lionel produced a train set based on the movie, and stronger-than-anticipated demand caused highly publicized shortages. Various news stories told of a reporter's quest to locate a set, and some dealers marked the prices up above the suggested retail price of $229. Sets turned up on eBay with buy-it-now prices of $449 as Lionel ordered an additional production run but said it would not be able to deliver the additional sets until March of the following year. Although many criticized Lionel for not producing more sets, Lionel's management called the set a great success.

This era was marked by legal troubles. In April 2000, competitor and former partner MTH Electric Trains filed a trade secret misappropriation lawsuit against Lionel, LLC, saying that one of Lionel's subcontractors had acquired plans for an MTH locomotive design and used them to design locomotives for Lionel. Additionally, on May 27, 2004, Union Pacific Railroad sued Athearn and Lionel for trademark infringement because both companies put the names and logos of UP, as well as the names and logos of various fallen flag railroads UP had acquired over the years, on their model railroad products without a license. While Athearn quickly settled and acquired a license, Lionel prepared to fight, arguing that it and its predecessor companies had been using the logos for more than 50 years and had been encouraged or even paid to do so.

The misappropriation lawsuit by MTH eventually went to trial, and on June 7, 2004, a jury in Detroit, Michigan found Lionel liable and awarded MTH $40,775,745. On November 1, 2004, a federal judge upheld the jury's decision. Lionel announced it would appeal, but two weeks later filed for bankruptcy.

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