Penney, Martha Stewart scale back partnership

[October 22, 2013]  NEW YORK (AP) -- J.C. Penney Co. is scaling back its partnership with Martha Stewart ahead of a ruling in its long-running fight with Macy's over Martha Stewart products.

The department store chain will no longer sell a broad range of home and bath products designed by Martha Stewart Living Omnimedia Inc., the two companies said Monday. Penney will continue to sell a smaller batch of Martha Stewart items, including window treatments, rugs and party supplies.

Penney will also be returning the media and merchandising company the 11 million shares it bought as part of the 2011 licensing deal and giving up two seats on Martha Stewart's board.

Plano, Texas-based Penney and Martha Stewart, based in New York, signed a merchandising deal in December 2011. That prompted Macy's Inc. to sue both companies for violating its exclusive agreement with Martha Stewart.

New York State Supreme court judge Jeffrey Oing had imposed a Friday deadline for the parties to resolve a fight over whether Macy's has an exclusive right to sell some Martha Stewart products, whether they carry the Martha Stewart moniker or not. Otherwise, the judge would make his own ruling. The agreement between Penney and Martha Stewart takes the big issue off the table. Still to be resolved is how much Penney must pay Macy's in damages and legal fees.

The trial, which began in February and continued in fits and starts, was hardly a plain-vanilla contract case. It featured testimony from Macy's CEO Terry Lundgren, former Penney CEO Ron Johnson and Martha Stewart herself.

Stewart, the company's founder and non-executive chairman, told The Associated Press in an interview Monday that the company revised the contract's terms in a "cordial way" to "eliminate the bones of contention in the lawsuit."

"We cleared up the issue. I hope this helps in the resolution of the lawsuit," she added.

Monday's announcement confirms "Macy's exclusivity in Martha Stewart housewares," said Ted Grossman, partner at Jones Day, the law firm that represented Cincinnati-based Macy's in the court case. "It was a total vindication of Macy's rights going forward," Grossman said in a statement.

Grossman declined to comment on how much it was demanding in reimbursement of legal fees. As for damages, he noted Macy's is waiting until it gets final sales figures for the home and kitchen merchandise that was sold by Penney and designed by Martha Stewart.

The revised agreement is the latest way Penney's returning CEO Mike Ullman is unraveling the botched bid by Johnson to transform the retailer. Johnson's changes led to disastrous results and caused its shares to plummet. Ullman retook the helm at Penney in April when Johnson was fired.

Johnson, who became CEO in November 2011, had signed the 10-year merchandising deal with Martha Stewart a month later and touted it as a key part of his plan to reinvent the chain. He envisioned small Martha Stewart shops filled with branded products. Penney then invested $38.5 million in Martha Stewart Living Omnimedia.

But a month later, Macy's sued both companies. Oing issued a preliminary injunction in the summer of 2012 that barred Penney from slapping the Martha Stewart moniker on the goods covered by Macy's exclusive agreement until the final ruling was made.

Penney went ahead and ordered goods designed by Martha Stewart in the exclusive products but sidestepped the injunction by labeling them JCP Everyday. The goods were delivered in May and were part of an overhauled home area that featured trendy names. But the home area has not done well and Penney is now making changes.

Stewart told The Associated Press Monday that Penney is now a different organization than it was, but she's looking forward to working with the retailer to continue to develop products.

"We have to get the customers back to Penney," she added.

The trial had also exposed friendships betrayed. Lundgren testified that he and Stewart had been good friends and that he hung up on her after she told him about the pact with Penney.

As for Lundgren, Stewart noted Monday that she would like to rekindle her friendship with the executive.

[Associated Press; By ANNE D'INNOCENZIO]

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