Martha Stewart, J.C. Penney deal hits legal setback

NEW YORK (Reuters) – A state judge on Friday temporarily blocked plans by Martha Stewart Living Omnimedia to sell certain branded products at J.C. Penney stores.

The preliminary injunction was a win for Macy’s , which has sued Martha Stewart Living claiming it has exclusive rights to sell certain Martha Stewart products including soft furnishings, dinnerware and cookware.

In issuing the preliminary injunction, New York State Supreme Court Justice Jeffrey Oing said Macy’s had shown likelihood of ultimate success in its lawsuit. “The scale tilts in favor of Macy’s,” the judge said.

J.C. Penney in December announced plans to open shops within its stores to sell Martha Stewart-branded goods, starting in 2013. Macy’s sued Martha Stewart Living, accusing it of breach of contract by entering into the agreement with J.C. Penney.

Macy’s claims Martha Stewart Living granted it the exclusive right to manufacture and sell the Martha Stewart-branded goods in Macy’s lines under a 2006 agreement that, with a renewal, runs until 2018.

Justice Oing said putting Martha Stewart products at J.C. Penney stores would deprive Macy’s of its competitive edge. He also noted that Macy’s had helped resurrect Martha Stewart Living’s image after its eponymous founder was found guilty in 2004 of lying about a stock sale.

“Macy’s took on the risk with MSLO after Martha Stewart left prison,” he said.

Martha Stewart, 70, who during the scandal resigned from the company she founded, was named chief creative officer this week, less than two months after she became non-executive chairman.

Martha Stewart Living said it will comply with the restrictions but still planned to go ahead with its deal with J.C. Penney in the first quarter of next year. “Nothing about today’s ruling changes that,” the company said in an emailed statement.

The company also said it would keep defending its position. “We continue to believe that we have not breached our agreement” with Macy’s, the company said. The parties are due back in court in November.

A spokesman for Macy’s, Jim Sluzewski, said the retailer expected to continue to sell the Martha Stewart-branded merchandise exclusively for the full term of its contract.

A spokeswoman for J.C. Penney declined to comment.

The Martha Stewart deal is a centerpiece of J.C. Penney’s plan to carve its 1,100 department stores into separate boutiques, each housing a distinct brand, by 2015. The concept is a key component of Chief Executive Ron Johnson’s strategy for J.C. Penney, which has lost market share in recent years. Earlier this week, Penney and Martha Stewart agreed to broaden the array of merchandise the stores would sell.

The case is Macy’s Inc. v. Martha Stewart Living Omnimedia, Inc., 650197/2012, New York state Supreme Court (Manhattan).

(Reporting by Karen Freifeld; Additional reporting by Phil Wahba; Editing by Eddie Evans and David Gregorio)