Martha Stewart's company lost a bid on Thursday to dismiss Macy's Inc's claim that it violated their contract when it designed certain products for J.C. Penney Co Inc , even if the products do not carry the Martha Stewart brand.
New York State Supreme Court Justice Jeffrey Oing's ruling may affect whether J.C. Penney can sell Martha Stewart-designed home goods in bedding, bath and cookware under a "JCP Everyday" label.
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The judge is expected to rule Friday on whether to temporarily block Penney from selling Martha Stewart-designed goods that Penney manufactured in that "Everyday" packaging.
A preliminary injunction already in place bars J.C. Penney from selling Martha Stewart brand products in certain categories.
A Citi analyst on Tuesday estimated the inventory already in a warehouse could be worth $100 million.
Oing also pushed again for the sides to settle, rather than leaving the matter in his hands.
"This is a business deal that you should not have courts getting involved in," Oing said. "It's getting to a point where the clock can't be turned back. The ship is ready to sail."
Macy's sued J.C. Penney and Martha Stewart Living Omnimedia Inc after the two companies announced plans in December 2011 to open "Martha Stewart" stores within J.C. Penney.
The plans were part of Ron Johnson's attempt to re-invent J.C. Penney after he became chief executive in November 2011. Johnson, who came under fire after sales fell 25 percent at the department store last year, was ousted on Monday.
Macy's claims Martha Stewart Living granted it the exclusive right to manufacture and sell Martha Stewart home goods in some categories under a 2006 agreement that, with a renewal last year, runs until 2018.
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.
(Reporting by Karen Freifeld; editing by Leslie Gevirtz and Matthew Lewis)