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Judge Ponders J.C. Penney’s Preliminary Injunction

The injunction, which ends April 1, impacts whether the retailer can sell branded and unbranded goods that were designed by Martha Stewart.

NEW YORK — Although Ron Johnson, chief executive officer of J.C. Penney Co. Inc., was the headliner Monday, it wasn’t the high-profile executive who drew attention — it was presiding Judge Jeffrey Oing.

Following the end of Johnson’s testimony, Oing addressed concerns over the expiration of Macy’s preliminary injunction that kept Penney’s from selling Martha Stewart-branded goods in its stores. That injunction, which was issued over the summer by Oing, ends April 1. It not only keeps Penney’s from stocking the shelves with wares bearing Stewart’s name, but it impacts whether the retailer sells unbranded goods that were designed by Stewart.

At the time of the injunction, Penney’s decided to re-brand certain goods that fell under exclusive categories that Macy’s determined with Martha Stewart Living Omnimedia Inc. in 2006. Those re-branded goods are now denoted with a double-house logo or the JCP Everyday trademark.

Penney’s lawyer Mark Epstein argued that if those goods are unable to be sold in April, it would be “extremely damaging” to Penney’s. There’s no product to put on the shelves in its stead, Epstein said.

“That’s the risk your company took,” the judge said. “In the last two weeks, things have crystallized to me. JCP went ahead and manufactured these products under the exclusive product categories.”

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The damages from the action would be Penney’s responsibility, the judge said, explaining that if he allowed the company to sell the unbranded goods before he ruled on the trial, it would “open a Pandora’s box,” as Macy’s would also suffer damages.

Oing, who seemed annoyed by the pace of the nearly three-week trial, added: “These three companies are the fabric of America. I’m cognizant of the risks [a ruling] will have on the retail industry.”

The judge said he had pushed for the matter to be settled among the three parties before it came to trial.

Legal counsel for the three parties continued to bicker over the unbranded Penney’s product and its impact on their respective companies. “When I get pushed to the wall, I start to kick,” Oing said, sternly, underscoring the fact he’d rather not make a decision on the spot. “I don’t like moving markets.”

With that, the judge said he would rule on the extension of the preliminary injunction Friday, which is when the trial had originally been scheduled to end.

Due to the length of questioning and the number of witnesses, the trial will continue beyond Friday, most likely picking up on April 8. The judge suggested a recess should the trial not be completed by Friday because Macy’s lawyer Theodore Grossman must prepare for another trial next week. The judge also cited Passover and Easter holidays, which begin at the end of the month, as roadblocks to continuing sooner in this month.

Oing, who once again stressed the importance of expediency, told the lawyers he expected to deliver a speedy verdict once the trial wrapped, and said that he is aware of the “impact” his decision has on the economy, as well as the all-important holiday season for retailers.

Earlier Monday, the judge sat through an hour of Johnson’s testimony, which wrapped up following an extensive examination on Friday.

Johnson, who wore a gray suit, white button-down and blue tie, appeared more relaxed Monday morning than last week. When asked about what his lawyer characterized as “boastful” e-mails on his part after his company inked a contract with Martha Stewart to sell branded goods in 2011, he said: “I kind of regret it.”

The ceo added that he never would have proceeded with an MSLO contract if he believed it would be construed as a breach of contract by Macy’s. Johnson explained that while he hasn’t seen confidential terms of the Macy’s-MSLO pact, he never thought he was “doing anything wrong” to ask to see the contract, as Penney’s was buying a 16.6 percent stake in the design firm.

The executive also revealed that his goal in signing Stewart was not so that she would re-create her Macy’s collection for Penney’s. Instead it was to develop new product. Case in point: Penney’s paid MSLO $6 million and a design fee to bring on a separate design team for its Penney’s line.

“We had the ability to really change the business for Martha Stewart Living…which has been struggling,” Johnson said. “We could provide growth. There aren’t that many large retailers left like ourselves.”

In growing the Stewart brand, MSLO’s then-ceo Lisa Gersh asked Johnson to reach out to Home Depot’s ceo, Frank Blake, to apprise him of the impending MSLO/JCP deal. Home Depot has a deal with MSLO to sell certain Martha Stewart-branded home improvement goods. According to Johnson, he abided and also asked Blake if he could sell some of the Martha Stewart for Home Depot product in Penney’s doors.

When questioned why he did not reach out to Macy’s ceo Terry Lundgren as he had with Blake, Johnson offered he was never instructed to do so by MSLO.

Grossman cross-examined Johnson, showing more e-mails that suggested the ceo had engineered a way for Stewart to break her Macy’s deal.

“Unless I’m having an out-of-body experience, I know where this case is going,” a testy Judge Oing interrupted.

After listening to the same line of questioning from Grossman’s Friday cross-examination, the judge said: “I tried a case two months ago on e-mails. I’ve been sitting here for two weeks now. I’m half-intelligent, I think. I can repeat Johnson’s testimony if you want.”

The trial continued with testimony from Penney’s senior vice president and general merchandising officer for home Paul Rutenis and Daniel Taitz, MSLO chief administrative officer, general counsel and interim-ceo.

Grossman questioned Taitz on confidentiality provisions in the Macy’s-MSLO contract, offering that many details were “not public” when the pact was given to Penney’s. The provisions included royalty rates, as well as the annual sales for Martha Stewart’s collection at Macy’s. Some of those financial details were provided to Peter J. Solomon, the advisory firm to Penney’s, but not the actual contract.

Taitz also said that MSLO gave a copy of the agreement under a confidentiality pact to Penney’s but the name “Macy’s” had been redacted.

Despite that omission, Taitz admitted to Grossman that he believed Penney’s “knew it was Macy’s.”

Later, under examination by MSLO lawyer Eric Seiler, Taitz explained that parties looking for details pertaining to Macy’s-MSLO had to sign nondisclosures, and those parties could only use the information when it pertained to evaluating a potential Penney’s-MSLO deal.

Stewart will take the stand on Tuesday.