* Month-long mediation effort fizzles
* Macy's claims has exclusive right to sell some items
* Part of fight centers on champagne flutes
By Karen Freifeld
NEW YORK, April 8 (Reuters) - Macy's Inc and J.C.
Penney Co Inc were back in court on Monday in their
fight over Martha Stewart, with Macy's claiming that some of the
items Penney has begun selling on its website infringe on its
exclusive deal with the home goods guru.
After a month-long mediation effort failed to yield a
settlement, the trial resumed in New York state court over
whether Macy's has an exclusive right to sell certain Martha
Stewart home goods products.
The legal battle has hampered a key part of turnaround
plans for Penney, which opened the first of its in-store home
goods boutiques last week for designers Jonathan Adler and
Michael Graves, and plans to open Martha Stewart shops in the
J.C. Penney CEO Ron Johnson has repeatedly told investors
that the retailer's revamped home section would put the company
back on the path to growth. Sales fell 25 percent last year.
Ahead of the Martha Stewart shop launch, Penney has begun
selling some Stewart products on its website, including a set of
four champagne flutes for $10 which Macy's told the court on
Monday overlaps with her collection there.
"The basic shapes and designs are the same," Macy's lawyer
Ted Grossman told the judge. "They compete directly against each
Penney's lawyer, Mark Epstein, said he had only just found
out about Grossman's claim. Eric Seiler, a lawyer for Martha
Stewart Living Omnimedia Inc, said that the Stewart
flutes sold by Penney are disposable plastic products and that
he thinks Grossman is wrong.
Justice Jeffrey Oing said he would allow them to look into
Oing last month ordered Macy's, Penney and Martha Stewart
Living Omnimedia into mediation in hopes of resolving the
dispute while the non-jury trial was in recess because of
Macy's claims Martha Stewart Living granted it the exclusive
right to manufacture and sell the Martha Stewart-branded home
goods in some categories under a 2006 agreement that, with a
renewal last year, runs until 2018.
Macy's sued Martha Stewart Living Omnimedia last year after
it signed an agreement to sell Martha Stewart-branded products
at J.C. Penney. Macy's claims the agreement breaches its
contract to sell certain products exclusively at Macy's.
Macy's also sued J.C. Penney over the deal. Martha Stewart
is the No. 1 home brand at Macy's.
Last year, Oing issued a preliminary injunction against
Martha Stewart Living, barring it from selling some branded
items at J.C. Penney. Penney agreed to abide by the injunction.
The lingering battle has been a blow to Penney, which agreed
to hold off on its plan to sell Martha Stewart bedding, cookware
and bath items, which are covered in the Macy's deal.
Martha Stewart, 71, Macy's Chief Executive Terry Lundgren
and J.C. Penney CEO Johnson all have testified.
Lundgren testified that Stewart did not tell him she was
doing a deal with J.C. Penney until the night before it was
announced publicly, while Stewart professed surprise at
Lundgren's angry reaction to the deal.
Johnson, who built up Apple Inc's retail business
before moving to Penney in 2011, testified that Martha Stewart
was a key part of his plan to reinvent the retailer, saying the
brand would help to drive sales and increase market share.
The company's turnaround plan, criticized for missteps on
pricing strategy, has been "very close to a disaster," according
to hedge fund manager William Ackman, the J.C. Penney board
member who handpicked Johnson. Ackman spoke on Friday at an
investment conference sponsored by Thomson Reuters.
The cases are Macy's Inc v Martha Stewart Living Omnimedia
Inc, 650197/2012, and Macy's Inc v J.C. Penney Corp,
652861/2012, New York State Supreme Court, New York County.
Penney shares were up 1.4 percent at $15.67 on the New York
Stock Exchange at midday on Monday, while Macy's shares were up
1.2 percent at $43.90.