J.C. Penney Company, Inc. (JCP), Macy’s, Inc. (M): The Companies Head Back to The Courtroom

After a month of failed mediation, Macy’s, Inc. (NYSE:M), Martha Stewart Living Omnimedia, Inc. (NYSE:MSO), and J.C. Penney Company, Inc. (NYSE:JCP) returned to the courtroom to hash out their differences. Those differences revolve around the allegation that Stewart’s company broke its exclusivity contract with Macy’s, Inc. (NYSE:M) when it agreed to sell in a new J.C. Penney Company, Inc. (NYSE:JCP)’s shop within a shop. Macy’s has requested two injunctions, and the judge overseeing the case granted one. The case had been on hiatus while the companies tried to make things work in the mandated mediation — but now it’s back on.

The issue at issue
If you had to boil the conflict down to one word, the word would be “store.” Macy’s, Inc. (NYSE:M) signed a deal with Stewart that meant the retailer had exclusive rights to sell some Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) branded merchandise. As part of the contract, Stewart agreed not to sell those items in any other store, unless it was a Martha Stewart-run location.

Enter J.C. Penney, which signed up Stewart as part of the company’s store-within-a-store program. Macy’s saw this as a violation of its terms, while Stewart and J.C. Penney Company, Inc. (NYSE:JCP) believed that the store should count as a stand-alone location, and thus fall into the Stewart-run exemption.

To muddle matters more, Judge Jeffrey Oing ruled for Macy’s, Inc. (NYSE:M) in one of the injunctions, and for J.C. Penney in the other. In effect, the judge said that Macy’s was right to try to stop Stewart from selling certain items, but J.C. Penney was also right to think that it could sell those items. Wow.

Outcomes to watch out for
Oing has said that any fines that come from the case will be small change compared to the loss associated with the injunction. For J.C. Penney Company, Inc. (NYSE:JCP), it could be a heart-stopper. The company already has stock of Martha Stewart products in its inventory, waiting to hit the shelves. Right now, the whole thing represents lost revenue, filling up shelves in back rooms.