Judge Trims JCPenney, Macy's, Martha Stewart Case Down To Basics

If JCPenney (NYSE:JCP) and Macy's (NYSE:M) are going to settle their lawsuit over rights to Martha Stewart merchandise, they'd better work fast or there won't be much left of the suit to settle. On Friday (April 12), New York state Justice Jeffrey Oing threw out an unfair competition claim against JCPenney and refused to expand an earlier preliminary injunction to include products designed by Stewart's company, Martha Stewart Living Omnimedia (NYSE:MSO), that aren't branded with the Stewart name.

That means the lawsuit Macy's filed in January 2012 has been whittled down to two claims: that Stewart's company violated its contract with Macy's by signing another deal with JCPenney, and that JCPenney interfered with Stewart's contractual relationship with Macy's, according to a Bloomberg report.

The injunction decision means JCPenney can sell the estimated $100 million of merchandise in its warehouses that came from Stewart's company—but only if the chain doesn't use Stewart's name. "You are to stay away from the Martha Stewart brand and label at all costs," the judge told JCPenney's lawyers. The chain said it plans to sell the merchandise under the "JCP Everyday" brand.

Dismissal of the unfair competition claim may qualify as the last success for departed JCPenney CEO Ron Johnson. The judge said he initially thought JCPenney might have been trying to slip through a loophole in the Macy's-Martha Stewart contract that permitted sales through "freestanding" stores. That's how Johnson originally planned to sell Stewart's merchandise under his shops-within-the-store concept for the chain.

But the judge changed his mind after Johnson testified that the idea for such stores came from the chain's success doing the same thing with cosmetics retailer Sephora. Ironically, evidence of that Sephora success  existed only because Johnson's predecessor and successor, Mike Ullman, had launched the Sephora shop-within-the-store.

All three sides in the case are set to return to court on Tuesday (April 16) to see what's left of the case and how to proceed.

For more:

-See this Bloomberg story
-See this additional Bloomberg story

Related stories:

JCPenney to Macy's: Let's Make A Deal Over Martha
If JCPenney Wants A Model For Its Retail Turnaround, It Has One: Macy's
JCPenney's Johnson Out, Ullman Back—What Now?