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Harley-Davidson Sues TM Licensees for Underpaying Royalties & Counterfeiting.

MILWAUKEE, June 9, 2009 -- Motorcycle manufacturer Harley-Davidson and its merchandising arm initiated a federal lawsuit against a former trademark licensee and its joint-venture partner, citing trademark infringement and breach of contract.

Harley-Davidson Motor Company, Inc. and H-D Michigan LLC brought the action in the U.S. District Court for the Eastern District of Wisconsin against Haddad Apparel Group Ltd. ("Haddad") and American Marketing Enterprises, Inc.

Harley-Davidson has primarily traded under the shield and bar design, but has utilized a number of trademarks over the years to generate billions of dollars worth of sales for goods and services.

Harley-Davidson entered into an three-year agreement with Haddad on January 1, 2004 allowing Haddad to manufacture and sell approved styles of merchandise bearing specifically identified Harley-Davidson trademarks through specified trade and distribution channels. The merchandise included such items as: children's apparel and accessories such as lunch bags, backpacks, wallets, belts, blankets and towels. The agreement between the parties was extended in 2006 so the relationship would terminate on December 31, 2008.

Per the terms of the agreement, Harley-Davidson engaged an auditor in 2007 to review Haddad's books and records concerning its sales of licensed merchandise and the royalties generated therefrom. The audit revealed that Haddad and its partners sold licensed merchandise to unauthorized parties not specificallly listed in the agreement. The audit also revealed that royalties in excess of $150,000 were not paid. A month after receiving the audit results, Harley-Davidson terminated the licensing agreement which provided 180 days for Haddad and its partners to liquidate any remaining merchandise which Harley-Davidson trademarks.

Despite the termination of the agreement on April 17, 2008 for cause, the defendants are accused of selling merchandise with Harley-Davidson trademarks through 2008 and into 2009. In addition to offering the merchandise on the Haddad web site, the complaint further alleged Haddad is offering the unauthorized merchandise on web sites operated by other enterprises, which were never on the approved list of the licensing agreement.

Some of the merchandise sold by the defendant is of a style or kind that was never authorized, such as pajamas and belt buckles. It is estimated the defendants sold more than 14,000 pairs of pajama pants to Kohl's Department Stores alone between July 9, 2008 and August 26, 2008 and 12,600 belt buckles to various parties between July, 2004 and November, 2006.

In addition to claims of trademark infringement and breach of contract, Harley-Davidson has also stated claims for unfair competition and trademark dilution. The primary purpose of trademark infringement laws is to protect consumers from confusion about the source for goods and services, while the owner of the infringed trademark recovers any judgment awarded. Trademark dilution laws protect the owner's property right in the goodwill associated with a trademark.

When a court finds a defendant intentionally counterfeited a registered trademark, the court must under the Lanham Act, enter judgment for three times the greater of the counterfeiters' profits or the plaintiff's damages together with a reasonable attorney’s fee unless the Plaintiff elects for statutory damages up to $1,000,000 per counterfeit mark per type of goods or services.