Yesterday, my friend Bob and I visited MTH in Maryland (photos later). Andy Edleman told us the great news that, at long last, all of the outstanding legal issues in the model train world involving MTH had been settled — in MTH's favor. Here's the official press release. Now, they can concentrate on producing the finest O-gauge models available.
M.T.H., MKT Settle Misappropriation of Trade Secrets Lawsuit
Columbia, Maryland, August 12, 2008 — The federal court case between M.T.H. Electric Trains and MKT (formerly Korea Brass) has been resolved via settlement between the two firms. Terms of the settlement include payment by MKT to M.T.H. in the form of Cash, HO tooling from the Broadway Limited product line and Lionel HO product line, a sub-license from Precision Craft Models for the DCC patent held by Real Rail Effects and dismissal of the MKT/Korea Brass financed QSI Patent Infringement case against M.T.H.
A federal trial in U.S. District Court (Southern District Michigan) was concluded on June 7, 2004 with a verdict in favor of the plaintiff, M.T.H. Korea Brass and its co-defendant, Yoo Chan Yang were found liable on M.T.H.’s claims of misappropriation of M.T.H.’s trade secrets. The jury also found that the defendants’ actions were willful and malicious. The jury awarded M.T.H. damages in the amount of $27,940,925.00.
Two weeks after the 2004 jury decision in Michigan, Korea Brass transferred all of its assets and purchase orders to a new Korean entity named MKT. In May of 2006, M.T.H. filed a lawsuit in the same Michigan U.S. District Court that heard the original suit to contest the fraudulent transfer of assets undertaken by Korea Brass to avoid that court’s judgment. In April 2008, a final judgment against MKT was issued finding that MKT and Korea Brass were one and the same and that MKT was liable for the original judgment against Korea Brass. An injunction was subsequently issued requiring that all payments due to MKT from its U.S. customers were to be paid to M.T.H. until the original judgment was satisfied.
The MKT settlement negotiations were complicated and delayed due to MKT’s current financial status, their previous ownership status of U.S. model railroad importer Broadway Limited, their relationship with Precision Craft Models and that firm’s relationship with DCC patent holder Real Rails Effects, and their joint venture agreement with QSI to fund a merit less patent infringement lawsuit against M.T.H. Electric Trains in an effort to pressure M.T.H. to settle the original Michigan trade secrets lawsuit. Precision Craft Models assisted Real Rail Effects patent infringement lawsuits in Florida against QSI, Atlas O LLC, and American Hobby Distributors. These suits alleged violations of Real Rail Effects’ patent for combining DCC with a Sound Decoder and M.T.H. felt it needed a license with Real Rail Effects to prevent a presumable forthcoming lawsuit between Real Rail Effects and M.T.H.
M.T.H. Electric Trains president Mike Wolf said; “It was so frustrating to negotiate the settlement due to all the moving parts.” Toward the end of negotiations, MKT insisted that the QSI suit dismissal not be included but Wolf wanted it resolved along with the Real Rail Effects patent infringement suit between QSI, Atlas O LLC, and American Hobby Distributors. According to Wolf, “I wanted to wrap up all of this litigation in one big settlement even though some elements of the resolution would have benefited my competitors, so I insisted that the QSI suit be resolved as well as the Real Rail Effects suits against the other named parties. This was one of the reasons this thing took so long, but in the end it was worth the wait.”
In the end M.T.H. secured cash payments of $950,000.00 and has taken ownership of the tooling for the following Broadway Limited HO models: Union Pacific die-cast Big Boy steam engine, Pennsylvania die-cast GG-1 electric, Alco PA diesel, Alco FA diesel, EMD F3 diesel and EMD F7 diesel. Also included were the two sets of Lionel HO tooling for their Union Pacific die-cast Challenger and their Union Pacific die-cast Veranda Turbine. MKT also agreed to provide to M.T.H., on behalf of Real Rail Effects and Precision Craft Models, a non-royalty, perpetual license for the right to produce and market model train products equipped with a DCC soundboard receiver. MKT also agreed to obtain a dismissal of the QSI lawsuit against M.T.H. for alleged patent infringements, as was MKT’s right to do so per its joint venture agreement with QSI.
M.T.H. Electric Trains, with the trade secrets case now completely behind it, will continue to forge ahead with its expansion plans in the HO, One-Gauge and O Gauge markets. The HO tooling acquired in the MKT settlement will require significant reworking in order to bring the models up to M.T.H.’s HO standards and house M.T.H.’s Proto-Sound 3.0 sound and train control modules. Once the upgrades have been completed, the models will be incorporated into M.T.H.’s ever-growing product lines that continue to reflect the company’s commitment to producing the best model railroading products available today.