By Karen Freifeld and Phil Wahba
Feb 20 (Reuters) - A lawyer for Macy's Inc told a judge on
Wednesday that rival J.C. Penney Co Inc and Martha Stewart
schemed to develop a partnership that ran afoul of Macy's
contract with the home goods doyenne.
Penney looked for loopholes in Macy's contract with Martha
Stewart Living Omnimedia so it could sell home goods under her
name within its stores, the lawyer said at the start of the
trial over whether Stewart's deal with Penney breaches her
company's agreement with Macy's.
"We're here to protect our rights. Rights that we paid for.
Rights that we worked on. Rights that we took tremendous risks
for," attorney Theodore Grossman told Justice Jeffrey Oing of
New York State Supreme Court in Manhattan.
Penney in December 2011 announced it would launch Martha
Stewart boutiques in about 700 of its department stores in 2013
and sell her products. It also bought 17 percent of her company.
The shops, set to open this May, are the centerpiece of an
improved home goods section that Penney Chief Executive Ron
Johnson has called crucial to returning Penney to growth.
Macy's sued Martha Stewart Living Omnimedia over the Penney
deal. It also sued Penney for interference and unfair
competition and is seeking unspecified damages. The cases were
consolidated for the non-jury trial.
Penney's lawyer, Mark Epstein, denied the company had done
anything untoward.
"J.C. Penney acted honorably and appropriately in all
respects," Epstein said in his opening statement.
Macy's wants the court to stop Penney from selling any
products designed by Stewart or carrying her name in categories
for which Macy's argues it has exclusive rights, including
cookware, home decor, and bedding.
Under the terms of Macy's contract, Martha Stewart Living
Omnimedia can open its own stores and sell any of the product
categories that are exclusive to Macy's. Macy's argued the
proposed boutiques at Penney are not the same as stand-alone
stores.
Martha Stewart Living and Penney claim Penney can also sell
items designed by Stewart within the exclusive categories as
long as they do not bear Stewart's name.
A lawyer for Martha Stewart Living, Eric Seiler, told the
judge to focus on the Macy's agreement. "There's been an effort
here to transform the contract into something it is not," Seiler
said in his opening remarks.
In court, Grossman said that Macy's had taken a risk on
Stewart, helping her resurrect her image after she left prison
in 2005. Martha Stewart was found guilty in 2004 of lying about
a stock sale. Grossman also told the judge how Macy's took the
Martha Stewart brand upscale after its association with Kmart.
Grossman said Stewart left Macy's in the dark about her
Penney partnership until the eve of the announcement when she
informed Macy's Chief Executive Terry Lundgren of the deal and
said it would be good for Macy's, too.
Macy's lawyer also quoted from an email from Penney's Ron
Johnson when the Martha Stewart deal was announced: "We put
Terry in a corner."
Penney lawyer Epstein said the emails Macy's lawyer cited
wrongly paint a "sinister picture" of Penney's dealings.
Epstein said the case shouldn't be a vendetta against
Stewart and Johnson. "This is no more than fair competition," he
said.
Stewart, Lundgren and Johnson are all likely to take the
stand during the trial that is expected to last at least two
weeks.
The cases are Macy's Inc. v. Martha Stewart Living Omnimedia
Inc., 650197/2012, and Macy's Inc. v. J.C. Penney Corp.,
652861/2012, New York State Supreme Court, New York County.
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