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Macy’s, J.C. Penney Ordered Into Mediation by Judge

Macy’s Inc., J.C. Penney Co. and Martha Stewart Living Omnimedia Inc., in the middle of a trial, were ordered into mediation by a New York judge to resolve a dispute over the right to sell some Martha Stewart merchandise.

During a nonjury trial that began in New York State Supreme Court on Feb. 20, Justice Jeffrey K. Oing ordered the two retailers and the home merchandise company to participate in mediation before April 8, when the proceedings are set to resume because of scheduling conflicts.

“It’s getting very close to a moment we don’t want to get to,” Oing said. “It’s reached a critical point in this trial where the business people should take a step back and find some common ground.”

Martha Stewart and Macy’s Chairman Terry Lundgren spoke on the telephone yesterday at the judge’s request, Oing said, adding “we’re still here.” Lundgren testified last week that he hadn’t spoken with Stewart since December 2011, when he hung up on her after she called to tell him about the J.C. Penney deal the night before it was announced.

“Martha Stewart and Terry Lundgren had a productive conversation regarding the ongoing contract dispute between MSLO and Macy’s,” Martha Stewart Living spokeswoman Katherine Nash said in a statement yesterday. “We view today’s actions as a positive step forward and welcome a prompt and fair resolution.”

Revive Sales

J.C. Penney in December 2011 acquired a 17 percent stake in New York-based Martha Stewart Living for $38.5 million as the department-store chain seeks to revive sales with new mini-stores dedicated to Martha Stewart and other brands.

Macy’s, which has sold Martha Stewart-branded home goods since 2007, sued her company in January 2012, saying it had the exclusive right to sell items in certain categories including bedding and cookware. Macy’s sued Plano, Texas-based J.C. Penney about three months later.

Lawyers for Macy’s, the second-biggest U.S. department store chain, have argued that J.C. Penney is trying to “reap the rewards” of its work with the Martha Stewart brand, which the chain says it rebuilt after Stewart’s release from prison in 2005, when her products were sold at Kmart.

Martha Stewart Living has defended its agreement with J.C. Penney, accusing Macy’s of breach of contract and saying the retailer stocked and priced Martha Stewart products in a manner that favors private-label brands. Martha Stewart Living also said Cincinnati-based Macy’s couldn’t have exercised a five-year renewal option in January 2012 because of the breach.

Unbranded Goods

Oing said he won’t hear arguments today on a possible request for a preliminary injunction blocking J.C. Penney from carrying unbranded goods designed by Martha Stewart Living in the categories exclusive to Macy’s after lawyers for J.C. Penney agreed not to stock the items until April 8.

Macy’s had said it was considering asking Oing to expand a preliminary ban against Martha Stewart Living to prevent J.C. Penney from selling Stewart-designed goods in certain exclusive categories even if they aren’t marked with her name.

The judge said he will listen to those arguments when the trial resumes if the three sides haven’t resolved the case by then.

“You folks gotta sit down and talk hard about this and get something done,” Oing said.

The cases are Macy’s Inc. v. Martha Stewart Living Omnimedia Inc., 650197/2012; Macy’s Inc. v. J.C. Penney Corp., 652861/2012, New York State Supreme Court (Manhattan).

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