April 12 (Bloomberg) -- J.C. Penney Co. will be allowed to sell unbranded items designed by Martha Stewart’s company in certain categories exclusive to Macy’s Inc. after a New York state judge denied Macy’s bid for an order blocking the sale.
New York State Supreme Court Justice Jeffrey Oing today declined to expand an earlier preliminary injunction to cover products designed by Martha Stewart Living Omnimedia Inc. and sold at J.C. Penney that aren’t branded with the Stewart name.
Oing said Macy’s, the second-biggest U.S. department-store chain, hadn’t shown that it would suffer irreparable harm if J.C. Penney was allowed to sell the unbranded goods. The judge said his earlier injunction issued in July applied only to goods branded with Martha Stewart’s name in categories exclusive to Macy’s, such as cookware and bedding.
“I cannot ignore the reality of harm to J.C. Penney even if it results from its own acts,” Oing said in denying the injunction, adding that the company could still face damages for lost profits if Macy’s prevails in the case.
Macy’s is suing both Martha Stewart Living and J.C. Penney, alleging that sales of products designed by Stewart’s company in J.C. Penney stores violates an exclusivity deal between Martha Stewart and Macy’s signed in 2006.
Macy’s had asked Oing to broaden a preliminary injunction he issued in July that blocked Martha Stewart Living from selling goods with the Stewart name at J.C. Penney in categories exclusive to Macy’s, including soft home goods and cookware.
Macy’s wanted Oing to extend the injunction to cover goods designed by Stewart’s New York-based company that don’t carry her name, which Plano, Texas-based J.C. Penney plans to sell under the name “JCP Everyday.”
“We’re going to appeal,” Ted Grossman, an attorney with Jones Day representing Cincinnati-based Macy’s, told reporters after the judge’s ruling. “We’re going to seek a stay and we’re going to do it immediately. We believe the court was in error and we expect a reversal.”
Jim Sluzewski, a Macy’s spokesman, said he expects the appeal to be filed April 15.
“We are disappointed in today’s decision, which is, by its nature, a preliminary ruling and not a final determination of Macy’s claims,” Sluzewski said in an e-mailed statement. “We are confident of a successful outcome in the appeal and ultimately in the litigation.”
The ruling means that J.C. Penney can start selling products designed by Martha Stewart Living in the categories exclusive to Macy’s under the name of “JCP Everyday” at least until the end of the trial.
Deborah Weinswig, an analyst with Citi Investment Research in New York, said in a note to investors last week saying that J.C. Penney may have taken a $100 million “hit” if it had to liquidate the inventory it already purchased.
J.C. Penney is pleased with the ruling and believes the JCP Everyday products “will be a compelling part of our overall home assortment, complementing brands such as Royal Velvet, Happy Chic by Jonathan Adler, Bodum and others,” the company said in a statement.
Oing declined to hear a request from Macy’s to enforce the injunction issued in July in connection with plastic partyware being sold at J.C. Penney under the name “MarthaCelebrations.” However, he warned lawyers for Penney to avoid any mention of Stewart’s name in connection with the unbranded merchandise.
“You are to stay away from the Martha Stewart brand and label at all costs in the exclusive categories,” Oing said.
The three sides returned to court this week to resume a trial of Macy’s lawsuits following a month-long break, during which mediation efforts ordered by Oing were unsuccessful. The trial, which began Feb. 20, has featured testimony from Martha Stewart, Macy’s Chairman Terry Lundgren and former J.C. Penney Chief Executive Officer Ron Johnson, who was ousted the same day the trial resumed.
J.C. Penney in December 2011 acquired a 17 percent stake in Martha Stewart Living for $38.5 million. Macy’s, which has sold Martha Stewart-branded home goods since 2007, sued her company the following month, saying it had the exclusive right to sell items in certain categories including bedding and cookware. Macy’s sued J.C. Penney about three months later.
Lawyers for Macy’s have argued that J.C. Penney is trying to “reap the rewards” of its work with the Martha Stewart brand, which the chain said 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 Macy’s couldn’t have exercised a five-year renewal option in January 2012 because of the breach.
The three sides are scheduled to return to Oing’s courtroom on April 16 to determine the status of the case.
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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