Interim Martha Stewart Ruling Favors J.C. Penney

Beleaguered J.C. Penney got a piece of good news on Friday, when a judge ruled it could — at least temporarily — sell a plethora of Martha Stewart-designed housewares under the JCP Everyday label.

Justice Jeffrey K. Oing of New York State Supreme Court, where Macy’s is suing J.C. Penney over its plans to sell Martha Stewart’s housewares, cited this week’s dismissal of the Penney chief executive, Ron Johnson, as one factor in his decision, describing him as “the architect of this entire dispute.”

In considering whether to stop Penney from selling the housewares, “I cannot ignore the reality of the harm to J.C. Penney, even if it is the result of its own acts, but the acts, I believe, were spurred on by their former C.E.O.,” Judge Oing said. The judge denied Macy’s motion for a preliminary injunction against Penney and declined to broaden an existing injunction against the Martha Stewart company.

Had Penney lost the ruling, it would have meant potentially getting rid of already produced items – at a loss of up to $100 million, according to an estimate in a Citi research report – along with having empty shelves when it unveils its new home departments in May.

The trial resumed on Monday after Penney, Martha Stewart Living Omnimedia and Macy’s — which is suing them both on claims they violated a contract over where the branded goods could be sold — failed to reach a settlement during a court-ordered monthlong break.

Macy’s, which has sold Martha Stewart products since 2007, argues that its contract prevents Ms. Stewart’s company from selling her home goods to competitors. However, there is an exception for sales at Martha Stewart stores.

Penney and Ms. Stewart’s company argue that, because Penney’s will set up boutiques within its department store for the products, that satisfies that exemption. They also argue that Penney should be able to sell housewares products designed by Ms. Stewart without her name on it.

Penney is still not allowed to sell Martha Stewart-branded products in housewares categories, and it has not produced any of those. But it can sell the JCP Everyday products without using the Stewart brand name in advertising those products, Justice Oing said. “I don’t want to see it in advertisements, in any brochures or promotions. You are to stay away from the Martha Stewart brand,” he said.

Penney does not get a total pass – it is just allowed to sell the products for the time being, and the judge left the door open for Macy’s to come back and claim harm once the actual sales data came in. And, of course, the final ruling could either allow Penney to or prevent it from selling any housewares designed by Ms. Stewart’s company. (Penney is already selling some Martha Stewart-branded items in categories Macy’s does not have an exclusive agreement over, like window treatments and stationery, which are mostly not at issue and the ruling Friday did not deal with.)

In making the ruling, Judge Oing declined to broaden a preliminary injunction from July that prevented the Martha Stewart company from producing goods with Ms. Stewart’s brand on them for J.C. Penney. That July injunction halted a central part of Penney’s strategy, which was to build stores-within-a-store featuring Ms. Stewart’s name and products. The boutiques have not been built, and J.C. Penney has no Martha Stewart-branded items in production.

As a workaround, given the injunction, Penney developed a brand called JCP Everyday to put on housewares designed by Ms. Stewart’s company. Macy’s is trying to get the court to reject those as well. Macy’s argues it has an exclusive contract with Martha Stewart to sell certain categories of housewares — including bed, bath and kitchen products — and Penney should not be able to sell either Stewart-branded products or Stewart-designed products in those categories.