Train Wreck
By Ian Mount

- (FORTUNE Small Business) After years of placid tinkering in the basement, the model-train industry has become entangled in lawsuits alleging industrial espionage. MTH Electric Trains, which claimed that industry legend Lionel had stolen its designs, won a $40.8 million judgment in 2004. (Lionel has appealed.) Lionel then filed for Chapter 11 and sued the industry's third musketeer, K-LINE Electric Trains, accusing it of paying a Lionel employee for trade secrets. K-LINE sought bankruptcy protection in August and in mid-October settled the Lionel suit for $2 million and an agreement not to use the technology in question. "This used to be a gentleman's business," says Lionel CEO Jerry Calabrese. "But in the last decade it's become very ugly." An aging customer base, a supply glut, and a technology arms race have turned Uncle Fred's hobby into a blood sport, says Neil Besougloff, editor of Classic Toy Trains. It's not likely to get better. "The primary thing is that age is catching up with toy trains," says Ron Hollander, author of a book on Lionel. "There's a diminishing pie, and the boys are fighting over the crumbs." Top of page