According to a memo filed by J.C. Penney, Macy's rights to Martha Stewart aren't nearly as sweeping as it suggests. Under Macy's interpretation of the contract, according to J.C. Penney, Martha Stewart Living is "little more than an in-house designer for Macy's."
"Macy's should stop competing in the courtroom and start competing in the marketplace," the company said in its memo.
In court documents, Martha Stewart Living said it will prove that it was Macy's Inc. that breached the contract because it didn't "use commercially reasonable efforts to maximize net sales of Martha Stewart Collection products."
The stakes are high for both retailers as well as for Martha Stewart.
Martha Stewart Living is trying to fatten merchandising revenue as it struggles to offset declines in its broadcast and publishing business, a segment that accounts for more than 60 percent of its total business. The New York company is downsizing its magazines and is cutting publishing jobs as it increasingly focuses on online video and other digital content.
And the deal with Martha Stewart is part of J.C. Penney's plan to re-invent the struggling department store under Johnson, who became CEO of the Plano, Tex., company in November 2011 after helping to create the look and feel Apple Inc.'s iconic stores.
The department store has struggled with mounting losses and sharp sales declines since early last year after shoppers were turned off by a new strategy that eliminated most sales in favor of lower prices every day.
J.C. Penney began adding shops featuring new hip brands last year and plans to overhaul the home department this spring with new names like Jonathan Adler and Michael Graves.
Martha Stewart, however, is at the center of the retailer's home products revamp.
As for Macy's, having another major department store sell Martha Stewart towels, pots and other merchandise could dilute its business.
Burt Flickinger, III, president of retail consultancy Strategic Resource Group, says that if J.C. Penney is unable to carry Martha Stewart, it could hurt the chain tremendously.
"It leaves Penney with one less power brand," Flickinger said.
Judge Oing will be deciding the outcome of the trial, rather than a jury.