NEW YORK — Marty Staff and Joseph Abboud could settle their hotly contested trademark dispute out of court, according to a source close to the case who said the sides were holding “ongoing discussions.”

The negotiations, which began last week and continued at presstime, follow three days of combative testimony during which both Staff and Abboud drew blood defending their claims to the latter’s name. But on Friday, Feb. 22, Judge Theodore Katz called recess—testimony is scheduled to resume March 10—and recommended the former business partners use the time to hammer out a compromise.

“I urge you to see this as an opportunity to come to some agreement,” he said.

Central to such a compromise: how Abboud can use his name to market and promote his new men’s wear line, Jaz. Both sides will have to agree on whether the designer can use his name for labels and hangtags, advertising, in-store collateral and public appearances, as well as how the name will appear.

JA Apparel, the company that owns the Joseph Abboud trademark, originally filed a suit last September charging that Abboud’s intention to use his name to promote his Jaz label, infringed on the trademarks it owns. The designer has argued that he never sold the exclusive rights to his name and is legally free to identify himself as the designer of the brand.

Attorneys on both sides declined to comment on the negotiation, but the defense offered a few clues on final day of testimony as to what a compromise might look like. Abboud’s lead lawyer in the case, Louis Ederer of Arnold & Porter, suggested that Abboud could use his name in advertising materials in type equal in size and emphasis to the words surrounding the name. For instance, in “Designed by Joseph Abboud,” the designer’s name would not be larger than the words “designed by.”

The deal between the two parties could be even more granular, stipulating the typeface used for the name, its proximity to the trademark, its proportional size to the mark and the language used.

But at presstime, a deal was not a foregone conclusion, especially given the rancorous nature of the testimony on both sides and the complexity of the case. In addition to trademark use, a compromise would have to settle other charges, including whether Abboud violated his non-compete agreement by working on Jaz before July 13, 2007, as well as the designer’s $93 million counterclaim that JA Apparel misappropriated Abboud’s reputation and publicity rights. Specifically, the defense charges that since Abboud left the company, JA has created a number of advertising campaigns that create the impression that Abboud still works for JA Apparel. The complaint cites as an example a slogan for an ad that read, “Do U Know Joe?”

“I’m glad there will be some resolution that we can live with,” said Abboud of a potential compromise. “I just want to go back to work.”

The trial is already sending ripples through the market. Retail partners have called Abboud asking how the lawsuit will impact Jaz. Abboud said he’s had to clarify that the trial will not affect the viability of the line, nor its current timetable. “This case only deals with how Jaz will be marketed,” he said, “not the line itself.”

Whether or not they reach a compromise, Staff and Abboud likely welcome the break. Both men were grilled for hours on the stand and had to defend personal attacks during cross-examination. Staff fought off suggestions that his departure from JA Apparel is imminent and that the lawsuit against Abboud is a last-ditch attempt to save his job. Abboud had to defend his reputation as a designer, his interpretation of the trademark deal he signed in 2000 and his actions leading up to the end of his non-compete agreement.

In particular, JA’s attorneys hammered Abboud on the circumstances surrounding his acquisition of Fall River Shirt Co., a manufacturer of woven shirts based in Fall River, Mass. Testimony revealed that the designer lent $1.5 million to cover the facility’s debts and operational expenses before July 2007. Payments were made to Alden Shirts, a company Abboud’s personal lawyer, Ted Dinsmoor, established, then passed on to Fall River Shirt Co. JA Apparel is charging Abboud with breach of contract and is seeking $500,000 in damages.

Barring a deal, the trial will resume at the U.S. Southern District Court in lower Manhattan next Monday, when big names in men’s wear are expected to testify, including Lord & Taylor chairman Richard Baker.