Federal Court Denies Dealer Challenge To OEM Internet Sales Policy

A Massachusetts federal court recently granted summary judgment in favor of a motorcycle manufacturer and dismissed claims by a dealer who argued the manufacturer’s internet sales policy breached the dealer agreement between the parties and violated the Massachusetts Dealer’s Bill of Rights, Mass. Gen. Laws c. 93B.  The decision affirms the right of manufacturers to control the manner in which their trademarks are used in online advertising and marketing and the distribution of products through the internet.

Dealer Challenges OEM’s 2021 Internet Sales Policy

In Ronnie’s Cycle Sales of Pittsfield, Inc. v. Harley-Davidson Motor Company, Inc., an authorized Harley-Davidson motorcycle dealer since 1956 challenged the manufacturer’s 2021 Internet Sales Policy. Under the 2014 dealer agreement between the dealer and the manufacturer, the parties agreed the dealer would operate from a single physical location in western Massachusetts; would be responsible for promoting the retail sale of Harley-Davison products in an assigned territory; and would not sell those products for resale to non-retail customers. The parties also agreed the dealer could sell new Harley-Davidson motorcycles through its website or otherwise in e-commerce “only as permitted by [the OEM] in writing.” The OEM in the dealer agreement reserved the right to establish from time to time policies it believed necessary to carry out the purpose or intent of the agreement.

In June 2021, the manufacturer announced that it was implementing a new Internet Sales Policy intended to ensure that its trademark was represented in a consistent, desirable way across internet sales channels.  The policy allowed customers to order products online for pickup at any Harley-Davidson dealership; allowed dealers to ship products ordered online directly to retail customers, but only if those customers resided in the dealer’s assigned territory; prohibited the sale of Harley parts and accessories to non-Harley OEM retail locations, but allowed the sale of parts and accessories to non-OEM retailers if those non-OEM retailers were located in the dealer’s assigned territory. The manufacturer contemporaneously adopted a non-retail sales policy prohibiting the sale by dealers of Harley-Davison products to non-authorized aftermarket retailers outside the dealer’s assigned territory.

The Pittsfield dealer immediately recognized the threat these new policies presented to its business model. The dealer did not sell many motorcycles from its physical location; rather, it derived most of its revenue from selling Harley parts and accessories to an affiliated non-Harley OEM retail location in the dealer’s assigned territory, which in turn sold these products to two affiliated aftermarket stores located New York and Vermont, together with operating a “lucrative online business” selling branded parts and accessories to customers across the country.  These practices had never been authorized by the manufacturer, and the revised non-retail sales policy and Internet Sales Policy explicitly prohibited them because (1) the affiliated retail location within the dealer’s assigned territory was a non-Harley OEM retail location (selling other motorcycle brands) and (2) the dealer could not sell parts and accessories to the non-OEM aftermarket retail locations outside of the dealer’s assigned territory.

The manufacturer offered to help the dealer transition its business practice to focus on retail sales at its physical location, but the dealer rejected this assistance and filed suit in federal court in February 2022, alleging the manufacturer had breached the dealer agreement between the parties; breached the implied covenant of good faith and fair dealing; had unlawfully modified the dealer agreement in violation of the Massachusetts Dealer’s Bill of Rights, Mass. Gen. Laws c. 93B; and had imposed anticompetitive territorial restrictions in violation of the Massachusetts Antitrust Act.

Court Dismisses Dealer’s Claims On Summary Judgment

After lengthy discovery proceedings—including a successful motion by the manufacturer to strike dealer’s disclosed expert after the dealer failed to obtain and provide a written report from that expert—the manufacturer moved for summary judgment in June 2024.  In a December 2024 unpublished decision, the court granted that motion in December 2024, holding that the manufacturer had not breached the dealer agreement or the implied covenant of good faith and fair dealing by adopting these policies, including the Internet Sales Policy.  The court noted that the manufacturer had expressly reserved the right to establish policies “necessary” to carry out the purpose of the agreement; that the Internet Sales Policy “translates [the OEM’s] traditional desire for a territory-based sales network run by physical dealers”; and that the dealer had offered no basis for the court to overturn the parties’ agreement as written.

The court also held that these policies did not violate the Massachusetts Dealers’ Bill of Rights, Mass. Gen. Laws c. 93B, which prohibits unfair methods of competition and unfair or deceptive acts or practices in the automobile industry.  The court noted that Chapter 93B did not “warrant a substitution of judicial for business judgment,” and concluded that the OEM had offered a “plausible business rationale” for its sales policies. Moreover, the manufacturer had not threatened to terminate the dealer, but had actually offered assistance to transition the dealer to the sales practices contemplated by the dealer agreement. As such, the court found there was no evidence that would enable a reasonable jury to find the manufacturer had adopted the Internet Sales Policy in violation of the Massachusetts dealer statute.

Finally, the court dismissed the dealer’s claim under the Massachusetts Antitrust Act because the Act only applies to commerce “primarily and predominantly” within the boundaries of the Massachusetts, and over 95% of the dealer’s revenue was derived from sales outside New England.  Moreover, because the dispute arose between sellers at two levels of distribution (i.e. manufacturer and dealer) and not competitors, the court found that the case was subject to the “rule of reason,” requiring that the dealer demonstrate that the Internet Sales Policy would have an anticompetitive effect in a properly defined relevant market.  Because the dealer had made no attempt to carry its burden to demonstrate at summary judgment that it could offer such evidence, the court dismissed the antitrust claim.