Macy’s & Penney’s in a Tiff Over Martha

MANHATTAN (CN) - Macy's claims in court that J.C. Penney interfered with its licensing contract with (nonparty) Martha Stewart Living Omnimedia.

Macy's sued Penney's in New York County Supreme Court.

Macy's claims it "took a risk" in 2005 when it agreed to be exclusive licensee for Martha Stewart trademarks, because Stewart recently had been released from prison, and Kmart, her company's main merchandising partner, had merged with Sears.

Stewart's company faced financial problems in mid-2011, and looked for a "cash infusion" from Blackstone Advisory Partners, according to the complaint. Penney's was facing its own financial troubles at the same time and, Macy's claims, and interfered with Macy's contract with Martha Stewart.

"Its [Penney's] recovery from the Great Recession was lagging well behind its competitors, especially Macy's," the complaint states. "Faced with enormous pressure to succeed, J.C. Penney turned to illegitimate means to accomplish its goals.

"During the summer of 2011, J.C. Penney met with Martha Stewart and other MSLO executives, as part of Blackstone's exploration of strategic alternatives for MSLO. The meetings were kept secret from Macy's. It soon became clear that J.C. Penney was looking to do more than simply make an investment in MSLO. Rather, J.C. Penney was interested in reaching a merchandising arrangement with MSLO that would allow J.C. Penney to sell Martha Stewart branded home products.

"J.C. Penney knew that Macy's exclusive licensing agreement with MSLO gave Macy's a competitive advantage in the marketplace. The exclusive availability of a wide variety of Martha Stewart-branded home products at Macy's brought foot traffic into Macy's stores, where customers would then shop for other items as well. J.C. Penney wanted the 'Martha Stewart' name to do for it what that name does, and has done, for Macy's. More importantly, J.C. Penney wanted to rob Macy's of market share and destroy the competitive advantage that it enjoys as a result of its existing exclusive arrangement with MSLO. Indeed, after causing MSLO to breach the Macy's Agreement, J.C. Penney admitted its tortious intent to the Wall Street Journal; its new CEO stated that 'chains just need to share,' and that, although '"[a] lot of retailers through the years have fought for exclusivity,"' '"there are certain brands [like Martha Stewart's] that should be available broadly."'" (Brackets in complaint, which cites the Wall Street Journal Dec. 8, 2011 story, "Martha's Deal Miffs Macy's.")

Penney and Stewart made a deal in December 2011, and the retailer invested $38.5 million in Stewart's company, Macy's says in its complaint.

Macy's sued Martha Stewart's company in January this year to try to stop MSLO from breaching their exclusive licensing agreement.

The lawsuit against J.C. Penney seeks a declaration that the company tortiously interfered with Macy's agreement with Martha Stewart, an injunction preventing J.C. Penney from continuing to use Stewart's trademarks, and punitive damages.

Macy's is represented by Robert Micheletto, with Jones Day.

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