Opinion ID: 807913
Heading Depth: 2
Heading Rank: 1

Heading: The Licensing Agreement and the Breach

Text: Harley-Davidson manufactures motorcycles and owns famous trademarks that are popular on clothing and other merchandise all over the world. For more than ten years, Harley-Davidson had a licensing agreement with a Greek company, Elmec Sport S.A., which was a subsidiary of defendant DFS. On January 1, 2010, Harley- Nos. 11-3618, 11-3838 and 12-1280 3 Davidson and Elmec reaffirmed this relationship in a trademark license agreement (the “Agreement”). Under the Agreement, Harley-Davidson permitted Elmec to use the “Harley-Davidson” and “Bar and Shield Logo” trademarks, among others, for Harley-Davidson-approved premium apparel products through Harley-Davidsonapproved European distribution channels. The Agreement required Elmec to undergo a three-stage approval process prior to its release of any Harley-Davidsonbranded products into the stream of commerce. Elmec had to submit to Harley-Davidson for review and written approval first all proposed concepts and artwork, then pre-production samples, and finally production samples. Elmec sent Harley-Davidson a notice dated January 20, 2011 of “Merger of our Company with our parent com- pany.” The notice informed Harley-Davidson that Elmec and DFS would “from now on, trade as a single entity” and that DFS “acts as full successor of Elmec.” In Elmec’s words, “all the contracts that Elmec has entered into remain valid,” and “this merger does not alter the ownership structure and/or the management of our company, and it shall not affect the business relationships between our two companies.” The Agreement gave Harley-Davidson the right to terminate it if Elmec went through a merger. HarleyDavidson did not not exercise that right. Instead, as it had promised, DFS just stepped into Elmec’s shoes in its relationship with Harley-Davidson. It submitted preproduction samples to Harley-Davidson for approval, 4 Nos. 11-3618, 11-3838 and 12-1280 exhibited Harley-Davidson-branded products, took orders, and met with Harley-Davidson to discuss future branded products at an annual Harley-Davidson dealer meeting. The same Harley-Davidson and DFS personnel continued to work together, and HarleyDavidson received DFS communications from e-mail addresses ending “@elmec.gr.” In April 2011, however, Harley-Davidson discovered that DFS had sold unauthorized products bearing the Harley-Davidson trademark to an unapproved German retailer, Penny Markt. Harley-Davidson learned of DFS’s action because other European dealers of its licensed products complained, believing that the distribution of sub-par products to unauthorized retailers would harm the Harley-Davidson brand and their own businesses. Harley-Davidson had not approved in writing any preproduction samples or production samples of the Penny Markt goods. In fact, DFS had not submitted any for approval, and Harley-Davidson had previously rejected a product concept and artwork for DFS’s “Essentials Collection,” which included several proposed products that were similar to Penny Markt goods. Nor had Harley- Davidson approved Penny Markt as a retailer under the Agreement. On April 14, 2011, Harley-Davidson sent an e-mail to DFS saying that Harley-Davidson believed DFS was in “serious breach of your contract” because of the Penny Markt sales, and that Harley- Davidson was “suspending approval of any products in concept, pre-production, or production phases.” DFS responded in kind, stating that it had “no option but to put on hold, as of today [April 15, 2011], all our dealings Nos. 11-3618, 11-3838 and 12-1280 5 with you under the Agreement of January 1st 2010.” On April 22, 2011, Harley-Davidson faxed DFS a letter describing DFS’s breaches of the Agreement and advising DFS that it was exercising its right to terminate the Agreement immediately. Over the following months, Harley-Davidson at- tempted to recover unpaid royalties from DFS and to secure from DFS certain information required under the Agreement. DFS refused these attempts. Even though Harley-Davidson had suspended all DFS product approvals and DFS had put “on hold” its own dealings with Harley-Davidson, on July 22, 2011, DFS submitted production samples for the then-upcoming “Autumn/Winter 2011-2012” goods collection for HarleyDavidson’s approval. Harley-Davidson did not review the samples, reminding DFS that its April 22, 2011 termination prohibited DFS from “designing, manufacturing, promoting, selling or distributing” any unauthorized products bearing Harley-Davidson trademarks. On July 28, 2011, DFS’s counsel advised Harley-Davidson that it had “wrongfully repudiated the License Agreement” and that DFS planned to “act unilaterally in accordance with its own views of the parties’ rights and obligations.” That exchange lit the fuse of this litigation.