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NEW YORK — Martha Stewart Living Omnimedia Inc. scored a victory in court, albeit a small one, in its trial against Macy’s Inc.
This story first appeared in the April 11, 2013 issue of WWD. Subscribe Today.
Presiding Judge Jeffrey Oing dismissed one of Macy’s claims that MSLO committed a breach of confidentiality when it inked its 2011 deal with rival J.C. Penney Co. Inc. to sell certain goods that were branded and designed by Martha Stewart. The general contract violation claim will be argued Thursday. A rankled Theodore Grossman, lawyer for Macy’s, said he would appeal the dismissal first thing in the morning.
“This, as the judge indicated, was a secondary matter but nonetheless an important one,” Grossman said. “We think that the judge’s decision was clearly in error. We expect a clear, prompt and certain reversal.”
According to sources, a decision on appeal will likely take months, if not years.
While Wednesday’s victory does not signal how the judge is likely to rule on the overall case, it does show that he believes MSLO took the necessary precautions for safeguarding confidential information about Macy’s when it began its dealings with Penney’s.
Central to the confidentiality breach dismissal was the fact that Penney’s made an investment in MSLO. In tandem with its licensing agreement with the retailer, MSLO sold a 16.6 percent stake to Penney’s, which amounted to a $38 million investment and gave Penney’s two seats on the MSLO board.
Grossman argued earlier in the day that Penney’s made an investment in MSLO so that it could get its hands on the Macy’s contract. According to securities law, MSLO is obligated to turn over its Macy’s contract to any potential investor. MSLO lawyer Eric Seiler echoed this and underscored that the Macy’s contract “doesn’t say MSLO can’t do business with anybody else. That’s not the case.”
Furthermore, in order to for Macy’s to have prevailed on the confidentiality violation claim, it would have had to show that it suffered damages. Because the Stewart-branded goods have not yet been sold in Penney’s stores, it’s virtually impossible to assess the monetary damages.
“For a breach of confidentiality contract…you need to have damages,” said the judge, who called any damages “speculative in nature.”
“I don’t think the injuries presented to me now have anything to do with the confidentiality clause,” said Oing.
On Thursday, Seiler will argue that MSLO is allowed to design products for any retail partners. If he wins that, then proving that MSLO is in violation of its Macy’s contract will be a tall order.
Penney’s will also put forth its motions, and then all three sides will tackle the issue of the preliminary injunction, in which the judge will mull over whether Penney’s can sell any of the products it made with MSLO. This includes branded and unbranded wares, which are marked with a “double-house” logo or the “JCP Everyday” trademark.
Leaving the courtroom, Macy’s Grossman said he was looking forward to that “big event,” as MSLO’s Seiler hung back with a grin on his face.
“The court indicated that it [Wednesday’s dismissal] was not an integral part [of the injunction ruling],” Grossman noted.