A long-standing distributor and licensee of Harley-Davidson motorcycles in Hawaii was entitled to proceed on its claim that the business relationship with Harley-Davidson Motor Company, Inc. was a "franchise" under Hawaii's Franchise Investment Law (HFIL), according to the decision of a federal court in Hawaii.

Cycle City was a distributor and dealer of Harley-Davidson products in Hawaii under various agreements since 1966. Cycle City was also a party to a license agreement with Harley-Davidson that let Cycle City manufacture and sell certain Harley-Davidson trademarked products. When Harley-Davidson declined to renew the agreements, Cycle City sued for breach of the agreements and violations of the HFIL.

Cycle City claimed the license agreement was a "franchise", which is described in the HFIL as a business relationship under which (i) a license is granted to use a trade name, service mark, trademark, or logotype; (ii) the franchisee pays a "franchise fee" to the franchisor; and (iii) there exists a "community interest" between the franchisor and franchisee in the operation of the franchise business.

The HFIL defines a "franchise fee" as any fee or charge that a franchisee must pay or agrees to pay for the right to enter into or continue to operate a business under a franchise agreement and a "community interest" as a continuing financial interest between the franchisor and franchisee in the operation of the franchise business. Cycle City claimed the grant of the license to use the Harley-Davidson trademarks, a required annual minimum payment of $30,000 to Harley Davidson on the sale of licensed products, Cycle City's substantial investment in the licensing venture and Harley-Davidson extensive controls over Cycle City's sale of licensed products all combined to satisfy the three elements of a "franchise".

The court agreed with Cycle City and noted there is "no precise line between when a company is simply a distributor or a manufacturer's trademarked goods and when the company is a franchise. The mere licensing of a trademarked good, without more, does not give rise to a franchise relationship. How much more is required is a matter of degree and, in many cases such as this one, a question for the finder of fact."

Read the entire decision: Cycle City, Ltd. v. Harley-Davidson Motor Co., Inc.