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Macy’s, Penney’s Trial Winds Toward a Ruling

Lawyers for the three companies shuffled into Judge Jeffrey Oing’s courtroom for closing arguments, following a three-month recess.

NEW YORK — One of fashion’s most protracted legal battles is finally coming to a close — albeit a slow one.

Lawyers for Macy’s Inc., Martha Stewart Living Omnimedia Inc. and J.C. Penney. Co. Inc. shuffled into Judge Jeffrey Oing’s courtroom in New York Supreme Court here Thursday for closing arguments, following a three-month recess.

The case, which has been intermittently at trial since February, is a contract dispute over whether Martha Stewart has the right to sell certain branded and unbranded home goods to Penney’s without violating its 2007 deal with Macy’s to sell certain branded wares exclusively.

MSLO’s agreement with Penney’s is part of a larger deal in which the department store bought a 16.6 percent stake in the media and design firm in December 2011.

Attorneys for the defense spent an hour and 15 minutes each outlining their case, while Theodore Grossman, the lawyer for Macy’s, spent two hours recapping his client’s side. Oing will now deliberate, but he said a verdict will not be delivered Friday, and most likely not during the next two weeks, when he will be on vacation.

While it’s unclear how the case will pan out, one need look no further than the recent decisions rendered by Oing and the New York State appellate court for an indication.

Before the trial’s recess, which began in late April, a New York appellate court judge backed Oing’s earlier decision that permitted Penney’s to sell unbranded goods designed by MSLO. Those goods, which bear Penney’s “JCP Everyday” or “double-house” logos, are currently sold in Penney’s stores and on its Web site. But following a preliminary injunction granted by Oing last summer, Penney’s has been prohibited from selling branded Martha Stewart goods.

That ruling is likely to hold and become a permanent injunction, according to Oing himself, who said Thursday that he didn’t “think there’s any dispute that product with a Martha Stewart mark cannot be sold” by Penney’s.

The question of the unbranded goods still remains, as does the larger issue of remedy. Oing will try to determine what, if any, damages Macy’s should be granted as compensation for Penney’s selling MSLO product.

Legal teams for Penney’s and MSLO argued Thursday that damages should not be granted, as it is “impossible” to determine lost profits on branded goods that were never sold.

In order to receive damages, the “injury has to be irreparable,” said MSLO’s lawyer, Eric Seiler. “A lawsuit is a demand for relief.”

Should Macy’s prevail on any of its claims, the question of compensation will undoubtedly need to be addressed, either immediately by Oing or in a separate trial.

“We didn’t sign on for a never-ending litigation with them,” Seiler said. “I have to object to that there will be a damages trial.”

Before addressing damages, the judge focused on a major point of contention, tackling the issue of design exclusivity. According to Macy’s, it has exclusivity over MSLO designs — whether they be attached to branded or nonbranded product. MSLO and Penney’s argued that Macy’s only has exclusivity when it refers to product bearing a trademark, and not broad exclusive categories, such as bath, home or kitchenware.

Half-mockingly, Seiler asked the court whether Macy’s has exclusivity over “any” generic categories stipulated in the contract, including “towels.”

“Everyone makes towels,” he said, adding that his client “shouldn’t” be punished if the Macy’s contract is “unclear.”

“If there’s a gap [in the contract], then the court shouldn’t fill in the blanks,” the lawyer noted.

Mark Epstein, the lead attorney for Penney’s, echoed Seiler.

“This has been a long trial….This comes down to a poorly written contract,” Epstein said. “But [for Macy’s] it’s their ambiguities that led to the problem.”

Epstein argued that proving a breach of contract isn’t sufficient to winning damages.

Macy’s lawyer Grossman homed in on the breach of contract, retelling the more sordid details of how Martha Stewart and ex-Penney’s chief executive officer Ron Johnson were complicit in violating it. Grossman rehashed the now-infamous phone call between Stewart and Macy’s ceo Terry J. Lundgren. The Macy’s ceo told the court during the trial that he was “hurt” and “disgusted” after Stewart told him of her plans to do business with Penney’s, prompting him to hang up on her.

“Macy’s has been a complete victim in this,” Grossman said Thursday, gesticulating and sneaking in that damages could take the form of attorneys’ fees rather than lost profits.

While an energized Grossman countered previous points made by the defense and intimated that an appeal may come should his client not prevail, attorneys for MSLO, who were sitting on the sidelines of the packed courtroom, chortled and snickered audibly.

Oing recentered the issue on the contract, eschewing the more salacious details of the case.

“Morally right or morally wrong, there’s no morality in this contract [case],” he said. “This is a contract case and ultimately I’ll decide it.”