A Somers company that owns molds for model trains has sued Lionel for allegedly not paying royalties for the toy-making equipment.
ATI Model Products Inc. is demanding $666,774 from Lionel LLC, in a complaint filed Oct. 11 in Westchester Supreme Court.
Lionel, founded in New York City around 1900, became the classic creator of toy trains that by the mid-20th Century evoked the quintessential boy’s gift under a Christmas tree.
Lionel, now based in Concord, North Carolina, did not respond to an email asking for its side of the story.
ATI was founded by Matthew Tager in 1965 and originally operated as American Tortoise Inc., in Farmingdale on Long Island, according to state corporation records, and began doing business as Model Power in 2007.
The third-generation family business also owns tools and molds for model cars, trucks and accessories that it licenses to toy makers.
In the early 2000s ATI acquired the Mantua HO-scale model railroad brand, according to news accounts.
ATI licensed the rights to the Mantua line exclusively to Lionel in 2018, the complaint states, with an option for Lionel to buy the assets.
Lionel agreed to pay $100,000 a year in royalties for five years and pay a $50,000 “knowledge transfer service fee.”
But in January 2021 Lionel notified ATI that it was terminating the deal for cause. The letter cited a section of the contract about interference or termination with use of the licensed property “by any governmental entity or body or any other third party.”
The complaint does not explain who Lionel believes interfered with the deal or how, but ATI says the grounds for termination are false and an excuse for getting out of the deal early.
“Contrary to Lionel’s assertions,” the complaint states, “ATI’s licensed property was always available for Lionel’s use under the agreement.”
ATI claims that Lionel owes $266,774 for unpaid royalties, fees and interest, and $400,000 for the cost of storing the property.
It is asking the court to declare that Lionel breached the deal, let ATI sell the licensed property to someone else, and order Lionel to return ATI’s confidential information. The complaint was verified by ATI chief financial officer Jonathan Tager.
ATI is represented by Purchase attorney Andrew S. Buzin.
