NEW YORK — Martha Stewart is crying foul.

This story first appeared in the February 13, 2012 issue of WWD. Subscribe Today.

Martha Stewart Living Omnimedia Inc. shot back at Macy’s Inc. Friday, claiming that the department store breached its contract by failing to “maximize net sales” of her branded products in its stores. The company also said that its recently extended contract with Macy’s should be deemed “invalid.”

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The claims come on the heels of a lawsuit filed in New York State court last month, in which Macy’s sued Martha Stewart, alleging breach of contract for inking an agreement with J.C. Penney Co. Inc.

Central to that claim is whether Martha Stewart violated her 2006 agreement to make and sell certain branded products exclusively to Macy’s by cutting a deal to sell branded products to Penney’s.

As far as Martha Stewart is concerned, there has been no violation, as the deal “places no restriction on MSLO’s ability to design, and arrange products in broad categories that are specifically exempted from the scope of the agreement,” the defense said in court papers answering the lawsuit.

Lawyers for Martha Stewart added that their client has the right to sell its products in MSLO-branded shop-in-shops, citing that the lawsuit never mentions the contract’s definition of an MSLO store, which is “any retail store branded or operated by MSLO or an affiliate of MSLO or that otherwise prominently features Martha Stewart marks or Stewart property.”

While the defense added Martha would not sell products to Penney’s that are covered by the Macy’s agreement, it also filed counterclaims, alleging that Macy’s didn’t live up to its contract, and therefore was in breach.

“They have used Martha Stewart Collection products to draw customers into Macy’s Home store, where its own private label brands take center stage and, of course generate higher profits for Macy’s without the burden of paying royalties to a licensor like MSLO,” according to the court papers.

Martha Stewart’s attorneys also said Macy’s is “liable” to MSLO for the “profits, which they have deprived it through their breaches of the agreement.”

In December, Martha Stewart sold a 16.6 percent stake in its business to Penney’s and signed a 10-year agreement that will create outposts devoted to the brand in Penney’s, beginning in February 2013.

That’s right after the five-year deal with Macy’s expires. Macy’s, though, maintains that it has the “unilateral right” to extend its five-year agreement with Martha Stewart. It exercised that right on Jan. 23, the same day it sued Martha Stewart. Macy’s now claims its agreement with Martha Stewart does not expire until January 2018.

Martha Stewart’s lawyers contended that Macy’s recent “attempt” to renew its agreement with Martha Stewart is “null and void and of no force and effect.” That agreement will therefore expire in 2013 and cannot be renewed, the defense said.

In addition to asking that the contract be deemed invalid, Martha Stewart is looking for damages.

Both sides are due back in court on March 8.

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