UNION PACIFIC AND LIONEL SETTLE TRADEMARK INFRINGEMENT LAWSUIT AND ENTER INTO TRADEMARK LICENSING AGREEEMENT
By Erol Gurcan ESQ. September 13, 2006-Lionel has settled the trademark infringement lawsuit brought against it by UP. Additionally, the two have also entered into a trademark licensing agreement. However, the court where Lionel's bankruptcy has been pending since November 15, 2004, must approve the deal since they are in bankruptcy. To that end, Lionel's attorney's filed two motions (an application for a court order) in the United States Bankruptcy Court for the Southern District of New York on September 13, 2006, requesting, 1) the court approve the agreement entered into by the two parties, and 2) requesting the court make some of the terms of the agreement confidential. The motions are currently scheduled to be heard on October 11, 2006. The information for this article was obtained from the two motions. It is expected the motion requesting the court to approve the lawsuit settlement and licensing agreement will be approved. This is because courts strongly approve of settlements between parties rather than trials. Pursuant to the motion, Lionel only needs to establish to the court that the settlement "is within the acceptable range of reasonableness." To that end, they have advocated the settlement was negotiated at arms length bargaining with Union Pacific's lawyers, both sides' lawyers are sophisticated and experienced, and that it is in their best interests of both parties rather than engaging in protracted litigation. Moreover, they have argued a resolution is in the best interests of Lionel's creditors since it will reduce litigation costs and allow Lionel to focus on making model trains, including those with UP logos.
By way of background, in May, 2004, UP sued Lionel for trademark infringement. Six months later, on November 15, 2004, Lionel filed for chapter 11 (reorganization) bankruptcy due to an unrelated $40.7 million judgment in the trade secrets case brought by MTH. Because Lionel filed for bankruptcy, the trademark infringement case has been stayed since that time. Although the UP's lawsuit papers never specified the amount of its alleged damages, the claim asserted by them as an unliquidated, unsecured claim in the bankruptcy court was estimated to be $640,000. Not only was the trademark infringement lawsuit pending in the bankruptcy court settled, but several other claims separately pending in the United States Patent and Trademark office, and Trademark Trial and Appeal Board were also resolved. These included the "Eagle design", UP design, Main Line Rio Grande, Texas Pacific Railway T & P, Chicago and Northwestern, and Missouri Pacific Lines. Although Lionel's attorneys have also made a second motion to keep some of the settlement terms secret, some of the more interesting ones have been set forth in the first motion requesting the court to approve the deal. Firstly, the agreement grants Lionel the nonexclusive right and license to use all registered and unregistered trademarks that are owned currently or in the future by UP, or have been used by it or its predecessor railroads. Secondly, Lionel may use UP trademarks in promotional items and packaging related to the manufacturing, marketing and sale of its products. Thirdly, the settlement of the lawsuit, proceedings in the trademark office and licensing agreement will take affect once it is fully executed and approved by the bankruptcy court, and shall continue unless terminated in writing by both of the parties, or other wise in accordance with its terms. This is probably part of the agreement the parties want to remain secret. Additionally, within 14 days of the bankruptcy court's approval of the settlement agreement, the parties will also file a stipulation of discontinuance and/or take other necessary action to bring the trademark infringement lawsuit, bankruptcy claim and proceedings in the Trademark office to a conclusion. Fourth, Lionel will pay UP an "annual royalty based on a percentage of average annual gross sales." Lionel also agreed its future products with UP logos will be consistent with or better in quality than that of past Lionel products, or at a minimum, consistent with the prevailing standard in the O gauge model train industry, and will comply with UP's trademark use control specifications. Ultimately, Lionel settled the Union Pacific case, at least in part, to make it easier for it to emerge from bankruptcy by having one less legal matter for the bankruptcy court to consider. However, MTH's $40.7 trade secrets judgment and its $17.5 patent infringement lawsuit remain. At least at this point, it is unlikely either of these cases will settle. The appeal of the trade secrets case was argued in the Sixth Circuit Court of Appeals on June 7 and a decision is expected late this year/early next year. MTH dropped the patent infringement case until there is a decision in the trade secrets appeal. A decision in the trade secrets appeal will also begin the 75 day time frame for Lionel to file a reorganization plan with the bankruptcy court. With Lionel settling the trademark infringement case, only UP's trademark infringement case against MTH remains pending. I will of course, continue to keep all update as necessary. | 
