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Judge says Macy's, Penney should have settled Stewart spat

The sign at the entrance of a J.C. Penney store is pictured in Arcadia, California March 1, 2013. REUTERS/Mario Anzuoni
The sign at the entrance of a J.C. Penney store is pictured in Arcadia, California March 1, 2013. REUTERS/Mario Anzuoni

By Karen Freifeld

NEW YORK (Reuters) - J.C. Penney Co Inc and Macy's Inc should have settled their dispute over the rights to sell Martha Stewart products, the judge overseeing a trial involving the two retailers said on Monday.

As the two sides faced the possibility on Monday that the trial could take longer than expected, Justice Jeffrey Oing said he would not be influenced by the financial impact on the companies.

"I've got to decide this case, and how it falls, it falls," Oing said.

Macy's claims that Martha Stewart Living Omnimedia breached a contract with Macy's when it entered into a deal with J.C. Penney.

Martha Stewart herself is expected to testify in the case on Tuesday. J.C. Penney Chief Executive Ron Johnson completed his testimony on Monday and Macy's Chief Executive Terry Lundgren was on the stand last week.

The judge has already put a temporary block in place that stops J.C. Penney from selling Martha Stewart-branded products in categories that were deemed exclusive in its contract with Macy's, such as cookware and bedding.

After that, J.C. Penney announced plans to sell those Martha Stewart products under the "JCP Everyday" brand. Macy's says that, too, violates its contract with Martha Stewart.

If the case is not over by Friday, the court's and the lawyer's schedules mean a recess is likely until April.

If the trial goes into recess, Macy's could ask the judge to expand his preliminary injunction to include the Martha Stewart products J.C. Penney plans to sell under the "JCP Everyday" brand, Theodore Grossman, a lawyer for Macy's, said on Monday.

That could be a "big problem" for J.C. Penney, attorney Mark Epstein told the judge. J.C. Penney, which is already struggling with big losses and sales declines, needs Martha Stewart products on its shelves by Mother's Day, on May 12, he told the judge.

The judge said he could hear arguments on an expanded injunction on Friday. "I warned you guys to get together and settle this case," Oing said.

He said J.C. Penney had taken a risk when it decided to put unbranded Martha Stewart products in its stores despite Macy's objections, Oing said. "If I were to let you put something on the shelf, it's opening a Pandora's box if (Macy's) prevail," he said.

But he also added that he had not made any decision in the case, including on whether to impose an expanded block while the case is underway.

"I haven't decided what I'm going to do," he said. "Right now, I'm keeping the cat in the bag."

All three companies have a lot at stake in the decision. Macy's chief executive Terry Lundgren testified on Monday that Martha Stewart was the store's single largest home goods vendor. He said the Martha Stewart brand grew eight percent last year, twice that of the store as a whole.

J.C. Penney chief executive Johnson testified Martha Stewart was part of his plan to re-invent his retailer. He said the brand would help drive sales and increase market share.

On Monday, Johnson was questioned by Grossman about an email he sent on December 8, 2011, the day after Penney's deal with Martha Stewart was announced. "I'm so sad," Johnson wrote, responding to a JCP executive who had said that Macy's sounded "pretty unhappy" with Martha Stewart's deal with J.C. Penney.

"Were you sad?" the Macy's lawyer asked.

"That was being facetious," Johnson responded.

(This March 4 story has been refiled to correct spelling of Stewart in headline)

(Reporting by Karen Freifeld; Editing by Eddie Evans; editing by Carol Bishopric)

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