H-D Michigan LLC et al v. Hellenic Duty Free Shops SA

Filing 69

ORDER signed by Judge Lynn Adelman on 12/20/11 granting 5 Motion for Preliminary Injunction. Further ordering that the Clerk of this Court shall maintain until further court order the security already posted by plaintiffs in the amount of $1.8 million to cover the costs and damages as may be suffered or sustained by any party who is wrongfully restrained. See order for additional details. (cc: all counsel, Financial) (dm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
H-D MICHIGAN, LLC and
HARLEY-DAVIDSON MOTOR COMPANY, INC.,
Plaintiffs,
v.

Case No. 11-CV-00742

HELLENIC DUTY FREE SHOPS S.A.,
Defendant.

DECISION AND ORDER
On August 5, 2011, plaintiffs H-D Michigan, LLC and Harley-Davidson Motor
Company, Inc. sued defendant Hellenic Duty Free Shops, S.A., a Greek corporation, for
breach of a trademark licensing agreement. After filing the lawsuit, plaintiffs moved for a
temporary restraining order (“TRO”) and a preliminary injunction enjoining defendant from
selling trademarked goods or otherwise using plaintiffs’ marks. On September 6, 2011, I
granted plaintiffs’ motion for a TRO. Defendant declined to participate in the hearing on
the motion. On September 19, 2011, at plaintiffs’ request I extended the TRO to give
plaintiffs time to serve process on defendant in Greece under the Hague Convention on
the Service Abroad of Judicial and Extrajudicial Documents. After defendant was served,
I conferred with the parties and again extended the TRO because defendant indicated it
would need time to engage in discovery before participating in a hearing on plaintiffs’
request for a preliminary injunction. On December 15, 2011, I held a hearing on such
request and now address the parties’ contentions.
The relevant facts are as follows: On January 1, 2010, plaintiffs entered into a

trademark licensing agreement with Elmec Sport S.A. (“Elmec”), a subsidiary of defendant.
Plaintiffs licensed Elmec to manufacture and sell clothing and accessories bearing HarleyDavidson trademarks. On December 31, 2010, Elmec merged with defendant and sent a
notice regarding the merger to plaintiffs. The notice stated that Elmec and defendant would
henceforth “trade as a single entity” and that defendant would act as “full successor” of
Elmec with respect to all contracts. (Decl. of Matt Thompson, Nov. 1, 2011 Ex. 1.)
Under § 4 of the licensing agreement, defendant was permitted to distribute goods
with plaintiffs’ mark only after receiving three separate written approvals from plaintiffs.
Plaintiffs had to approve the designs for the collection, the pre-production samples and the
production samples. In late 2010, plaintiffs approved the designs for Elmec’s collection of
autumn-winter 2011-2012 apparel (the “AW collection”), and in January 2011, plaintiffs
approved the pre-production samples. Defendant then took orders for the goods at the
Harley-Davidson dealers convention in February 2011 and on March 23, 2011 advised
plaintiffs that it was submitting orders to factories to begin manufacturing the collection.
Shortly thereafter, in April 2011, defendant began selling a different collection of
goods subject to the licensing agreement, the “Essential Collection.” Plaintiffs allege that
the Essential Collection consisted of low-quality goods bearing plaintiffs’ mark which
plaintiffs had not approved, and that defendant was selling such goods through an
unauthorized distribution channel, a German grocery store chain known as Penny Market.
As a result, on April 14, 2011, plaintiffs notified defendant that they were “suspending
approval of any products in concept, pre-production or production phases.” (Decl. of Patrick
Smith, Dec. 15, 2011 Ex. 3.) On April 15, defendant responded that in light of the
suspension of approvals it “had no option but to put on hold, as of today, all our dealings
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with you under the [licensing agreement].” (Id. Ex. 4.) On April 22, plaintiffs notified
defendant that, because of defendant’s breach, plaintiffs were terminating the agreement.
In the termination letter, plaintiffs asked for a complete inventory of all licensed or
unauthorized goods in defendant’s possession, including all goods being manufactured for
defendant by third parties, and a list of customers who had purchased either licensed or
unauthorized products from defendant. Plaintiffs then sent a memo to Harley-Davidson
motorcycle dealers stating that it had terminated its relationship with defendant but that
orders placed prior to termination “should be delivered as anticipated.” (Decl. of Emmanouil
Zachariou, Oct. 27, 2011 Ex. 6.)
In response to the termination letter, defendant sent plaintiffs a list of items “in
inventory as of May 24, 2011.” (Prelim. Inj. Hr’g, Def.’s Ex. 5, 5A.) On June 6, June 23, and
July 19, 2011, plaintiffs asked defendant to clarify whether this list included articles in the
process of being manufactured by third parties, but defendant refused to provide any
additional information. On July 22, 2011, defendant notified plaintiffs that it had completed
production of the AW collection and submitted production samples to plaintiffs for approval.
On July 26, 2011, plaintiffs advised defendant that it “should not be designing,
manufacturing, promoting, selling, or distributing these products or any other products
bearing any of Harley-Davidson’s trademarks” and declined to review or approve the
samples. (Id. Def.’s Ex. 9.) As a result, defendant remains in possession of the AW
collection and has not filled the orders placed at the dealers convention.
To justify a preliminary injunction, plaintiff must prove that “it is reasonably likely to
succeed on the merits, it is suffering irreparable harm that outweighs any harm the
nonmoving party will suffer if the injunction is granted, there is no adequate remedy at law,
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and an injunction would not harm the public interest.” Christian Legal Soc’y v. Walker, 453
F.3d 853, 859 (7th Cir. 2006). To prove that they are likely to succeed on the merits,
plaintiffs must demonstrate that defendant is bound by the terms of the licensing
agreement, that plaintiffs rightfully terminated the agreement and that the agreement
prohibits defendant from selling the AW collection. In interpreting the agreement, I apply
Michigan law.

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First, I find that plaintiffs are likely to prove that the licensing agreement was binding
on defendant. Defendant disputes this, arguing that plaintiffs failed to provide prior written
consent to the transfer of the agreement resulting from defendant’s merger with Elmec.
Defendant points to § 14 of the agreement, which states that it “may not be assigned,
sublicensed, encumbered, or otherwise transferred . . . without the prior written consent of
Licensor.” (Prelim. Inj. Hr’g, Def.’s Ex. 1.) However, § 14 is likely inapplicable to the transfer
at issue here. This is so because § 10, which is more specific and detailed than § 14,
distinguishes between transfers resulting from mergers and other transfers, i.e. those
described in § 14. Section 10.1(c)(i) specifies that when a transfer of the agreement
results from a “merger” the licensor may terminate the contract, but it does not contain a
prior written consent requirement. Prior written consent is required only when the transfer
does not result from a merger. (See § 10.1(a)(v).) In the present case, the transfer of the
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Section 6.1 of the contract reads: “This Agreement shall be construed in
accordance with, and all disputes between the parties arising out of or relating to this
Agreement shall be governed by, the laws of the State of Michigan, without regard to any
choice of law principles.” As a federal court sitting in Wisconsin, I look to Wisconsin choiceof-law rules to decide what law to apply to the contract. See Klaxon Co. v. Stentor Electric
Mfg. Co., 313 U.S. 487, 496 (1941). Wisconsin choice-of-law rules permit the parties to
select the law that will govern their contract. Bush v. Nat’l School Studios, Inc., 139 Wis.
2d 635, 642 (1987).
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contract to defendant resulted from a merger. Thus, the transfer took effect unless plaintiffs
terminated the contract, which they did not.2
Next, I conclude that plaintiffs are likely to prove that defendant breached the
contract by selling the Essential Collection. On September 24, 2010, defendant asked
plaintiffs to approve the designs for the collection. Plaintiffs submit an affidavit stating that
in October 2010 they denied this request. Defendant does not dispute this assertion.
Defendant also does not dispute that it sold the collection and that it did so through an
unapproved distribution channel. Thus, plaintiffs are likely to prove they had a right to
terminate the contract and that they did so through their April 22, 2011 letter.
Further, plaintiffs are likely to prove that the licensing agreement prohibited
defendant from selling the AW collection. Under § 4.11,
Licensor reserves the right to suspend the approval process outlined above and
action on any pending request or submission by Licensee for approval once
Licensor has given notice to Licensee of any breach of this Agreement until
Licensee cures the breach or the matter is otherwise resolved to Licensor’s
satisfaction.
On April 14, 2011, plaintiffs advised defendant they were “suspending approval of any
products in . . . production phases” because defendant had breached the contract by
selling the Essential Collection. Defendant acknowledged the suspension. A week later,
plaintiffs terminated the contract. While the termination letter references § 11.1 of the
contract, which permits defendant to continue manufacturing goods to fill orders taken prior
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Defendant’s duties under the contract include the duty to consent to personal
jurisdiction in this court. Section 16.2 of the agreement states: “Any and all disputes
between the parties arising out of or relating to this Agreement shall be brought, heard and
determined exclusively in either the Milwaukee County Circuit Court for the State of
Wisconsin or the United States District Court for the Eastern District of Wisconsin, and
Licensee consents to personal and subject matter jurisdiction and venue in such courts .
. . .”
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to termination, it also makes clear that in plaintiffs’ view § 11.1 “applies only to authorized
and approved licensed products.” (Decl. of Matt Thompson, Aug. 12, 2011 Ex. 6.) The
production samples for the AW collection had not yet been approved. Therefore, as of April
22, defendant knew that it could no longer manufacture the AW collection. Defendant
argues that the April 25 memo from Harley’s Dealer Communications Section advising
dealers of the problems with defendant and stating that orders placed prior to termination
should be delivered as anticipated somehow countermanded plaintiffs’ suspension of
approvals. I disagree. The memo was not directed to defendant but rather to third parties.
Moreover, it stated that the details surrounding the termination were still being worked out.
Plaintiffs clearly hoped that such details would be worked out but ultimately they were not.
Probably the principal reason that the problems were not worked out was that after
April 25 defendant likely breached the contract several more times by failing to provide
plaintiffs with information about its customers and sales as required by the contract. In the
termination letter and several times thereafter, plaintiffs asked for information on all sales
of Essential Collection goods and any other unapproved goods and for a list of customers
to whom defendant had sold either licensed or unauthorized goods. Section 6.1 of the
contract required defendant to submit to plaintiffs “a written list of all customers of
Licensee, together with information regarding sales of Licensed Products to each
customer” upon plaintiffs’ request. While § 17.7 states that § 6.1 does not survive
termination of the agreement, these requests were initially made prior to termination.
Additionally, on July 19, 2011, plaintiffs notified defendant of their intent to visit defendant’s
offices to inspect records kept in connection with the sale of goods bearing plaintiffs’
marks. Section 3.5 requires defendant to maintain “accurate books of account and records
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covering all transactions relating to the Licensed Articles” for two years following
termination, and plaintiffs are allowed to come on-site to inspect these books. Defendant
refused to allow the inspection.
Based on these facts, plaintiffs likely had a right under the contract to decline to
review or approve the production samples for the AW collection, and § 4.3 prohibits
defendant from selling the collection without plaintiffs’ approval. While Michigan contract
law implies a covenant of good faith and fair dealing in every contract, plaintiffs are likely
to succeed in proving they acted in good faith. Ferrell v. Vic Tanny Int’l, Inc., 357 N.W.2d
669, 672 (Mich. Ct. App. 1984). When terminating the contract, plaintiffs repeatedly asked
for information on goods being manufactured, but defendant did not respond until three
months later when it had finished manufacturing the AW collection.
In addition to establishing a likelihood of success on the merits, plaintiffs have
shown that in the absence of injunctive relief they are likely to suffer irreparable harm and
that their legal remedies are inadequate. If defendant sells the AW line in violation of its
agreement with plaintiffs, plaintiffs will lose control over their trademarks. Even if a plaintiff
fails to demonstrate a business loss, the law presumes that injuries arising from trademark
infringement are irreparable because plaintiff’s reputation is being imperiled by the acts of
another. Re/Max North Cent., Inc. v. Cook, 272 F.3d 424, 432 (7th Cir. 2001). This type of
injury has no adequate remedy at law because “it is virtually impossible to ascertain the
precise economic consequences of intangible harms, such as damage to reputation and
loss of goodwill, caused by such violations.” Abbott Labs. v. Mead Johnson & Co., 971
F.2d 6, 16 (7th Cir. 1992).

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The benefit to plaintiffs and the public also outweighs the potential harm an
injunction would do to defendant. I use a sliding scale to weigh the balance of harms. The
greater the likelihood of success on the merits, the less net harm the injunction must
prevent in order for preliminary relief to be warranted. Judge v. Quinn, 612 F.3d 537, 546
(7th Cir. 2010). Plaintiffs have a significant likelihood of success on the merits. If I grant
an injunction defendant will need to pay either to store or to destroy the AW collection, and
it will not be able to fill the orders placed for the collection. However, plaintiffs have
submitted affidavits from at least three dealers who voluntarily cancelled their orders for
the AW collection, and by this late date in the fall season, defendant has already broken
most of the original contracts for the goods. Further, an injunction would serve the public
interest by preventing consumer confusion. Promatek Indus., Ltd. v. Equitrac Corp., 300
F.3d 808, 813–14 (7th Cir. 2002). Therefore, I will issue a preliminary injunction.
Pursuant to Fed.R.Civ.P. 65(c), plaintiffs must post security with the court in order
to support the injunction and cover the damage to defendant in the event defendant has
been wrongfully enjoined. For the reasons already stated in my orders dated November 7,
2011 and November 17, 2011, which addressed the bond for the TRO, I will order plaintiffs
to maintain the $1.8 million bond they have already posted with the court.
THEREFORE, IT IS ORDERED that plaintiffs’ motion for a preliminary injunction
[Docket # 5] is GRANTED. Defendant and its employees, agents, partners, officers,
directors, owners, shareholders, principals, subsidiaries, related companies, affiliates, joint
ventures, distributors, dealers, and all persons in active concert or participation with any

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of them who receive actual notice by personal service or otherwise are hereby ENJOINED
from:
1.

Manufacturing, assembling, distributing, promoting, advertising, and selling

any products or associated tags, labels, packaging, containers, displays, and any other
materials bearing any of the Licensed Trademarks or variations thereof;
2.

Using any of the Licensed Trademarks or variations thereof in any manner

on or in connection with any products or associated tags, labels, packaging, containers,
displays, and any other materials;
3.

Representing by any means whatsoever, directly or indirectly, that defendant,

any products offered by defendant, or any activities undertaken by defendant are
sponsored or licensed by plaintiffs, or are otherwise associated or connected in any way
with plaintiffs, or that the Agreement is still in effect;
4.

Destroying, altering, secreting, transferring, or otherwise disposing of (or

allowing to be destroyed, altered, secreted, transferred, or otherwise disposed of) any
artwork, products, pre-production and production samples of products, means for making
products, advertisements, promotional materials, sales and accounting records, letters,
emails, files, and documents (whether on paper, in electronic format, or on any other
medium) relating to: (a) the Licensed Trademarks, (b) the Agreement, (c) the manufacture,
sales, or promotion of products bearing the Licensed Trademarks or variations thereof to
or by Penny Market grocery stores, (d) the manufacture, sales, or promotion of products
bearing the Licensed Trademarks or variations thereof to or by Real grocery stores, or (e)
the claims and allegations asserted by plaintiffs in their complaint in this action;

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5.

Assisting, aiding, or abetting any other person or business entity in engaging

in or performing any of the activities referred to in paragraphs 1 through 4 above.
IT IS FURTHER ORDERED that the Clerk of this Court shall maintain until further
court order the security already posted by plaintiffs in the amount of $1.8 million to cover
the costs and damages as may be suffered or sustained by any party who is wrongfully
restrained.
Dated at Milwaukee, Wisconsin, this 20th day of December, 2011.

s/_______________________
LYNN ADELMAN
District Judge

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