Two weeks after the trial started, after deliberating for parts of two days, the jury returned, having completed a seven-question verdict form:
Was plaintiff the owner or co-owner of information that qualified as a trade secret? Yes.
Did defendant Korea Brass and defendant Yang improperly acquire, disclose to Lionel, or use this information? Yes.
Did defendant Lionel improperly acquire or use this information? Again, Yes.
Did improper use of this information cause injury to Mike's Train House's business? Yes.
Then the court clerk came to question five on the verdict form -- the amount of damages the jury chose to award MTH for past lost profits and future lost profits. For past: "Eleven thousand, nine hundred...." The clerk stopped and corrected herself: "Eleven million, nine hundred and seventy-eight thousand, eight hundred and eighty-seven dollars." For future profits: $13,794,518.
In addition, the jury deemed that Lionel had unjustly enriched itself by $12,834,820 and Korea Brass and Yoo Chan Yang by $2,167,440. Lastly, the jury answered once more in the affirmative: Yes, the defendants' actions were willful and malicious.
Wolf's head was down; he was totaling the numbers he had written down. When he looked up from his sheet of paper and a number in excess of $40 million, he turned to the jury and mouthed the words: "Thank you."
While Lionel and Wellspring have mostly declined to comment on the trial, juror Edward Rutkowski, a 51-year-old tooling layout inspector and the only member of the jury with relevant technical manufacturing expertise, explained one of the determining factors. "What was pretty damning," he says, "we brought into the jury room two trains [an MTH and a Lionel]. I flipped them over and the way the screw holes and everything lined up there was no doubt in my estimation that it was a copied design. You could have literally screwed the parts for one train to the other."
After news of the verdict was reported in the Detroit papers and The Washington Post, which serves MTH's hometown of Columbia, Wolf's phone started ringing with calls from stockbrokers and insurance salesmen and financial planners. But there's been no windfall. And, except for a brief, call-all-the-employees-together meeting, no celebration to speak of.
It took U.S. District Judge John Corbett O'Meara, who presided over the case, nearly five months to issue his final ruling. He did so in early November, at which time he denied all of Lionel's post-trial motions, including an ongoing request that the verdict be dismissed for lack of evidence. He let stand the damages assessed by the jury. Furthermore, O'Meara enjoined Lionel from using existing tooling or drawings to continue to manufacture the 20 engines that the jury determined Lionel had manufactured through the misappropriation of MTH trade secrets.
In the time between the jury's decision and the judge's final ruling, Wellspring fired Bill Bracy, Lionel's CEO and president, and installed Jerry Calabrese, former president of the company that owns Marvel Comics -- making him the sixth Lionel president in 15 years. It was Calabrese, then, who led Lionel on November 15 as the company filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
As Lionel made its filing, Calabrese released this statement: "The MTH judgment alone has forced us to take this action. Lionel is a sound company that enjoys healthy sales, growing demand for our products and the best brand and reputation in the business. Having said that, the size and weight of this judgment is just too much for what is essentially a small business to bear. Taking advantage of bankruptcy protection will not only allow us to pursue an eventual reversal of this unfair decision, it will enable us to create, manufacture and ship our products in our normal and usual way."
Those last four words, especially, stuck in Wolf's craw. "They have yet to accept responsibility or redress their actions, which the jury found to be willful and malicious," he says. "And in their press release they proudly claim business as usual. I've been vindicated on paper, but I've not received a dollar -- I've had to cut back to sustain my business."
Where this will end isn't clear. MTH is Lionel's largest unsecured creditor -- and will have a say in any reorganization. There is a chance that Wolf really will come to own Lionel, or at least rights to the trademark. But there are other scenarios, some of which involve the loser of a devastating trade-secrets judgment outlasting the winner. Lionel is pressing for a reversal or downsizing of the jury verdict -- and could, of course, prevail on appeal.
These days, MTH's 120,000-square-foot building, which once received and processed nearly 200 container loads of trains made in South Korea and China annually, is unloading two-thirds as many. From a high of 127 employees, MTH is down to 57. Unoccupied desks make some departments look like ghost towns. Nobody has gotten a raise or a bonus in four years. Wolf says he's cut his own salary from $195,000 to $35,000 a year and has sold off much of his personal train collection. Sales are down to about half their peak from five years ago, as demand in the O-scale market has shrunk. Blame the economy, but also blame overproduction fostered by the poisonous competition between MTH and Lionel. MTH made a five-figure profit in 2003. The expectation for 2004? "We're going to lose six figures," says Wolf.
And yet, he also says he'd file the suit all over again -- regardless of the price he's had to pay and how consuming it's been. Even when he's at home in his own backyard, Mike Wolf, who has been in the business of model trains for more years than he's been shaving, cannot get away from this industry train wreck. At least not if he's facing his house, which he built back when he worked with, not against, the company founded by Joshua Lionel Cowen. For there, bricked into the chimney, like a tattoo bearing the name of a former girlfriend, appear a half-dozen foot-high letters:
L-I-O-N-E-L.
