Martha Stewart Cites Loophole in Macy's Contract Breach Lawsuit - In House
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Martha Stewart Cites Loophole in Macy's Contract Breach Lawsuit

Macy's is suing Martha Stewart's company for an alleged contract breach involving J.C. Penney that could affect billions of dollars in sales.

But the contract at issue contains a legal loophole, attorneys for Martha Stewart Living Omnimedia contend, according to Reuters. As Martha Stewart herself might say, "It's a good thing" for her company.

The Macy's/Martha Stewart dispute centers on a 2006 contract that allegedly granted Macy's exclusive rights to make and sell products in the "Martha Stewart collection" line until 2018, Reuters reports.

But then J.C. Penney jumped in.

JCP bought nearly a 17% share in Martha Stewart Living in December, Dow Jones Newswires reports. Penney then announced plans to create "Martha Stewart stores" inside its retail locations, to sell Martha Stewart-brand merchandise beginning in 2013.

Lawyers for Macy's filed suit, asking for an injunction to stop the J.C. Penney deal and prevent "irreparable injury to Macy's," according to Reuters. Billions of dollars in sales are at stake, the Macy's suit asserts.

But Martha Stewart Living's attorneys say both deals can co-exist, thanks to a legal loophole in the Macy's contract.

The loophole allows Martha Stewart Living to sell its products in any "Martha Stewart store" -- even if that store is located within another store like J.C. Penney, a Martha Stewart Living spokesman told Dow Jones.

But Macy's lawyers say the J.C. Penney deal encroaches on Macy's exclusive rights, "cannibalizing and negatively impacting" sales. They also point out that Penney's planned "Martha Stewart stores" will be staffed by Penney's employees, Reuters reports.

Macy's says it has already been hurt by Martha Stewart Living's deal with Penney. The deal has "devalued" Martha Stewart's products because they are no longer exclusive to Macy's, the Macy's lawsuit asserts.

A New York judge is set to weigh these arguments in the Macy's/Martha Stewart Living contract dispute. A hearing for a preliminary injunction is set for March.

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