Menu
Blog Banner Image

The Franchise Memorandum

Hawaii Federal Court Denies Franchisor's Motion to Dismiss; Finds Harley-Davidson License Agreement May Constitute Franchise

A federal court recently denied defendant Harley-Davidson's motion to dismiss a claim under the Hawaii Franchise Investment Law ("HFIL"). Cycle City Ltd., v. Harley-Davidson Motor Co., 2015 WL 3407825 (D. Haw. May 26, 2015). Cycle City alleged that HarleyDavidson failed to renew a license agreement between the parties in violation of the HFIL. In response, Harley-Davidson argued that Cycle City failed to state a claim under the HFIL because the relationship between the parties is not a franchise governed by the law. Under the parties' license agreement, Cycle City was granted the right to manufacture certain goods bearing Harley-Davidson trademarks, subject to HarleyDavidson's approval of all products, packaging, and promotional materials. The license agreement required Cycle City to pay Harley-Davidson royalties for the sale of such licensed products.

The court noted that under the HFIL, the parties' relationship must satisfy three criteria to qualify as a franchise: (i) Cycle City must have received the right to use the Harley-Davidson trademark; (ii) a community interest must exist between Cycle City and Harley-Davidson; and (iii) Cycle City must be required to pay a franchise fee to Harley-Davidson. Harley-Davidson argued that the relationship could not be considered a franchise because the second and third factors were not present. The court disagreed, noting that Cycle City sufficiently alleged facts indicating the existence of a continuing financial interest between the parties in the operation of the business in order to demonstrate the existence of a community interest. In addition, the court noted that the HFIL defines a franchise fee as any fee or charge that a franchisee is required to pay for the right to enter into a business or continue a business. Because Cycle City was required to pay Harley-Davidson royalties under the license agreement, the court determined that all three factors were sufficiently alleged, and that Cycle City successfully stated a claim under the HFIL.

Email LinkedIn Twitter Facebook

The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

To subscribe to monthly emails for The Franchise Memorandum, please click here

Topics

Archives

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Blog Authors