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Macy's Inc. (M) has no exclusive right to sell Martha Stewart Living Omnimedia Inc. (MSO) merchandise, the domestic doyenne's company said in a legal filing Friday.
The filing is Martha Stewart Living's response to Macy's seeking to prevent Martha Stewart products from being sold at J.C. Penney Co. (JCP) starting next year.
While Martha Stewart Living-designed goods are sold in approximately 600 Macy's stores, they are also available in over 6,000 retail outlets, including Home Depot Inc. (HD) and other large chain distributors, the filing said. "Macy's simply has no exclusive right to Martha Stewart Living's creativity or design concepts, now or in the future," the filing said. Martha Stewart Living is also allowed to sell its products in stores-within-stores, which is what J.C. Penney will set up, the filing said.
Additionally, the filing stated, Macy's had no right to renew its contract with Martha Stewart Living beyond January 2013 because it breached its agreement for reasons that include failing to maximize the sale of the products. Macy's, in tandem with filing its complaint seeking a preliminary injunction last week, said it was renewing its contract with Martha Stewart Living until 2018.
Martha Stewart Living also claimed that Macy's minimized its products, using them as a way to draw attention to the Macy's home furnishings departments, then promoting its own products that royalties are not paid on.
As a result, there is no basis for a permanent or preliminary injunction, the filing stated.
In seeking a temporary injunction, Macy's said it has already been damaged by J.C. Penney's selling agreement with Martha Stewart Living and that billions of dollars are at stake if Penney is allowed to sell Martha Stewart-branded merchandise in its stores.
Martha Stewart Living "has breached and plans to continue breaching" an exclusive agreement with Macy's in which "billions of dollars of sales are involved," Macy's said in the breach-of-contract suit filed in New York State Supreme Court.
Representatives of Martha Stewart Living, Macy's and J.C. Penney declined to comment.
The battle lines were drawn in December, when Martha Stewart Living sold 16.6% of the company to J.C. Penney and Penney said it also signed a 10-year contract in which it would create stores-within-stores to sell Martha Stewart Living wares.
The sales agreement is to kick in a year from now, which is just when Martha Stewart Living's five-year contract with Macy's was to expire. Macy's has since extended the agreement under a "unilateral right" and, as a result, said its contract with Stewart doesn't expire until 2018.
In the lawsuit, Macy's said it has been "irreparably harmed" because Martha Stewart Living is now using the knowledge it gained by selling through Macy's to develop a new marketing plan with Penney. The agreement with Penney has also "devalued" the Martha Stewart products that Macy's is now selling "in ways that are not calculable" because, until now, it was thought that Macy's would be the only place to get certain Martha Stewart products, the suit said.
-By Karen Talley, Dow Jones Newswires; 212-416-2196; firstname.lastname@example.org