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Macy’s, MSLO Split Key Court Decisions

Early in the day, Judge Jeffrey Oing denied Martha Stewart's argument to dismiss its exclusivity of design claim.

Judge Jeffrey Oing had a productive day Thursday.

The New York state court judge delivered a slew of rulings regarding the contract dispute brought forth by Macy’s Inc. against Martha Stewart Living Omnimedia Inc. and J.C. Penney Co. Inc.

Early in the day, Oing denied Martha Stewart’s argument to dismiss its exclusivity of design claim.

Essentially, the judge’s decision deemed that there is sufficient evidence to show that MSLO breached its contract when it designed product for Penney’s. A day earlier, the court found that MSLO did not violate its contract in terms of confidentiality. On Thursday, Oing also:

• Agreed that Penney’s didn’t violate confidentiality either.

• Dropped Macy’s claims that Penney’s intentionally interfered with the MSLO/Macy’s contract.

• Dismissed Macy’s claim for damages as it relates to disgorgement. This means that Macy’s will not get MSLO’s design fee that it obtained from designing product in exclusive categories for Penney’s. MSLO said the fee amounted to about $4 million.

But it was the Macy’s design exclusivity claim that was the most significant ruling of the day, even though the judge said afterward that the ruling “does not mean Macy’s will prevail” in the larger case.

The ruling indicates that Macy’s has convinced him enough to believe MSLO did commit some sort of breach when it designed product for Penney’s.

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The ruling also plays a role in whether Penney’s will be able to sell warehouses filled with product designed by Martha Stewart bearing the “JCP Everyday” trademark and the “double-house” logo. This question will be tackled today when the judge will hear arguments concerning whether the preliminary injunction, which he issued over the summer, will be expanded to include these nonbranded wares.

Currently, MSLO has been banned, on a preliminary basis, from selling its branded wares in Penney’s stores, and because of that, Penney’s has thus far halted the process of creating Martha Stewart shops-in-shop that will stock her branded goods. In 2011 the department store signed a deal with MSLO to sell these branded and unbranded wares in its stores. Penney’s also bought a 16.6 percent stake in MSLO.

Thursday’s ruling on design exclusivity followed a back and forth between MSLO lawyer Eric Seiler and Macy’s Inc. lawyer Theodore Grossman over MSLO’s ability to design for multiple partners.

Seiler argued that MSLO should be able to design for whomever, even though Macy’s has a contract to sell Stewart-branded and designed product in exclusive categories for the retailer. Instrumental to Seiler’s argument was that the Macy’s/MSLO contract, which was inked in 2007, doesn’t say Macy’s “owns” MSLO’s designs. In fact, he argued, it doesn’t “directly” address design when it comes to exclusivity.

“MSLO has licensed to Macy’s the exclusive use of the Martha Stewart trademark,” Seiler said. “Once its [product] is tied to the trademark or Stewart property, they have exclusivity.”

The lawyer added that Macy’s doesn’t have the “right” to get all of his client’s design ideas.

Oing said that would assume that “design is one area and the trademarking is another, that they are mutually exclusive.”

The word “exclusive” was emphasized by Grossman, of Macy’s, who said that “exclusive means unique.”

“There is no language in this contract that carves out an exception to that term,” he said. “Macy’s intended to get all designs in these categories.”

Grossman called the Macy’s/MSLO deal “extraordinary” because both parties had the same intention, namely that MSLO would design product exclusively for Macy’s and that the retailer would have the “right of first refusal” when it came to deciding whether to make those wares.

Before he hears arguments on the potential expansion of the preliminary injunction today, Oing will decide whether to throw out Macy’s claims that Penney’s competed unfairly when it entered into the MSLO partnership.

It appeared as though Oing was unfazed by the unfair competition claims, as he noted the “highly competitive” nature of the retail industry, and that Macy’s has not unearthed evidence that trade secrets had been revealed by MSLO to Penney’s.

“The retailers are out there putting on their Inspector Clouseau hats,” he said, referring to the fact that industry hands and executives are constantly doing research on their rivals. “Mr. [Terry] Lundgren, Ms. [Martha] Stewart and Mr. [Ron] Johnson are all very competitive by nature. That’s why they are good at what they do.

Jokes aside, Oing warned the lawyers that he would prefer not weighing in on today’s all-important preliminary injunction expansion.

“This is a business deal that you should not have the courts involved in,” he said. “Once I start doing certain things, you cannot turn back. I cannot express that enough. There’s a lot at stake.”

Although the case is still up in the air, one thing is fairly certain; however Oing rules on the injunction, an appeal on his decision is largely expected.