Lionel, LLC - The Wellspring Era (1995-current)

The Wellspring Era (1995-current)

Lionel changed hands again in 1995, when Kughn sold controlling interest in the company to an investment group that included Neil Young (a longtime fan of model trains and of this brand) and the holding company Wellspring Capital Management, which was headed by former Paramount Communications (formerly Gulf+Western) chairman Martin Davis (he had left the board of Viacom, which bought Paramount the previous year). 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 continued. Neil Young now had a 20% stake in the company.

In order to proliferate Trainmaster Command Control as a standard, Lionel 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 products are 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, the backlash was minor in comparison to 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 US$229. Sets turned up on eBay with buy-now prices of US$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. The set remains a popular seller in the product line in 2012.

In 2006, the Lionel electric train was inducted into the National Toy Hall of Fame, along with the Easy Bake Oven. It was the first time an electric toy had ever been inducted. That same year, Lionel made a bigger push to sell its train sets outside of hobby shops, selling them in stores such as FAO Schwarz, Macy's, and Target. By November 2006, the company had turned a US$760,000 profit on sales of US$55 million.

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 initially resisted, 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. On September 13, 2006, Lionel and UP settled the suit for US$640,000 plus a royalty on future sales.

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 US$40,775,745. On November 1, 2004, a federal judge upheld the jury's decision. Lionel announced it would appeal, and two weeks later filed for bankruptcy, citing the judgment as the main reason. On December 14, 2006, the judgment was overturned on appeal, citing legal mistakes in the jury trial, and a new trial ordered.

In September 2004, the company dismissed its CEO, Bill Bracy, and replaced him with Jerry Calabrese, a former Marvel Comics and NASCAR executive. Along with Bracy, another 17 high-level employees were also dismissed.

In July 2005, Lionel sued competitor K-Line for theft of trade secrets. The two companies settled out of court but the settlement quickly fell apart, leading to K-Line declaring bankruptcy and selling its assets to Sanda Kan, a Chinese subcontractor who did manufacturing for both K-Line and Lionel. In January 2006, Sanda Kan licensed the K-Line name and intellectual property to Lionel.

On March 27, 2008, a bankruptcy judge approved Lionel's reorganization plan, including a settlement with MTH. Although the specifics were to remain sealed, the Associated Press reported that Lionel settled with MTH for US$12 million.

Customer service and repair operations were moved from Michigan to Ohio in the summer of 2009. Despite briefly affected operations, preventing replacement parts from being shipped until at least the end of August of that year., the new facility enabled improvements in service efficiency.