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Macy’s, Martha Stewart Meet in Court

Attorneys for the two sides plan to file a motion to partially seal court documents.

NEW YORK — Macy’s and Martha want their privacy.

A week after Macy Inc. filed a lawsuit against Martha Stewart Living Omnimedia Inc. alleging breach of contract for agreeing to a deal with J.C. Penney Co. Inc., lawyers for both parties agreed to file papers that would keep certain case documents private.

The motion, if approved, would likely seal the complaint and include redactions on forthcoming motions, in order to protect certain confidential information.

Presiding Judge Jeffrey Oing told both sides in Manhattan state court Monday that he “would sign” the papers once they were filed.

At issue is whether Martha Stewart, in cutting a deal to sell branded products to Penney’s, has violated her 2006 agreement to make and sell certain branded products exclusively to Macy’s.

While the complaint has not yet been filed — just a summons and a notice — the lawyers divulged some of the case’s core issues at the conference on Monday.

“Macy’s is built around private licenses and exclusive brands,” said Ted Grossman, a partner at Jones Day, who represents Macy’s. “The reason why a person goes to Macy’s versus someplace else is because it’s the only place they can get it.”

The attorney argued that Martha Stewart “confirmed” last week at a Penney’s presentation that the product her company sells exclusively to Macy’s will be sold at Penney’s.

As a result, Macy’s said it intends to file a preliminary injunction to prevent Martha Stewart from selling such branded wares to its rival.

The lawsuit has become a new front in the battle between Macy’s, which has consolidated its position in the traditional department store space, and Penney’s, which operates at a lower price point but is steering an aggressive new course under chief executive officer Ron Johnson, who rose to prominence as head of Apple’s retail effort.

Penney’s plans to replace the 400 brands currently on its floors with 100 focused shop-in-shops and to continue to link up with brand names such as Martha Stewart and Nanette Lepore. This emphasis on having fewer, stronger brands puts Penney’s in more direct competition with Macy’s and its exclusive offerings from the likes of Tommy Hilfiger and Madonna.

The legal fireworks could be just the beginning of a new supercharged rivalry between the two department store giants.

Counsel for the defense, Eric Seiler of Friedman Kaplan Seiler & Adelman LLP, reminded Judge Oing that Penney’s wouldn’t be selling any Martha Stewart-branded product in its stores until February 2013. After renewing its agreement with Martha Stewart last week, Macy’s contends that its agreement with the brand now expires in January 2018.

“Macy’s does not have an exclusive with Martha Stewart,” Seiler said. “Certain goods are made for Macy’s…but we sell to Michael’s [Stores]…to Home Depot.”

Judge Oing smiled and confirmed that he in fact “does remember” seeing Stewart’s line of paint at Home Depot.

“The issue, which is a narrower issue, is the contract says that Martha Stewart, which has a standing agreement with Macy’s, can sell goods in MSLO, Martha Stewart Living Omnimedia, stores, and we are creating Martha Stewart Living Omnimedia stores inside of J.C. Penney,” the attorney clarified. “We have the absolute right to sell whatever we want in MSLO stores.”

Macy’s raised concerns over its intellectual property rights connected to its Martha Stewart-branded product. But lawyers for Martha Stewart said the company doesn’t “intend to sell any” of the goods it makes for Macy’s or give those designs to J.C. Penney.

Opposing counsel added that designers working on Martha Stewart Collection, Martha Stewart’s Macy’s line, will not be working on the Penney’s collection.

“Right now we’re spinning our wheels here,” interrupted Judge Oing. “At the end of the day, you’ve got to file a TRO [temporary restraining order].”

The judge indicated that, if filed, he consider whether to sign such an order, which would remain in effect while a motion for preliminary injunction is being decided.

“Figure out what you want me to sign in respect to the confidentiality of the case,” he said. “We’ll go from there.”

With that, both sides agreed to file that paperwork today.