By Joseph Ax
NEW YORK, Aug 30 (Reuters) - Macy's Inc lost an attempt on Thursday to block J.C. Penney Co Inc from proceeding with plans to sell a number of Martha Stewart home goods products in its stores.
Macy's is battling J.C. Penney over which chain can sell a host of Stewart items, including dinnerware, candles and cookware.
Macy's has filed separate lawsuits against Martha Stewart Living Omnimedia Inc and J.C. Penney, claiming it holds the exclusive right to manufacture and sell Stewart branded goods in certain categories under a 2006 agreement that runs until 2018.
In July, New York State Supreme Court Justice Jeffrey Oing issued a preliminary injunction against Martha Stewart Living, barring it from selling some branded items at J.C. Penney and finding Macy's had shown it was likely to prevail in its lawsuit against the homemaking entrepreneur's company.
But at a court hearing on Thursday, Oing said he was unconvinced that Macy's had shown a likelihood of success in its separate claim against J.C. Penney.
The judge acknowledged that the latest ruling could put him in an "awkward situation" after having issued the injunction last month. He said he stood by his earlier decision, but expressed reservation about restricting a major retailer's ability to conduct business.
"It's one thing to enjoin MSLO because that company is the centerpiece of these actions," he said. "It's another thing to enjoin a retail company from doing business. We live in a free-market society."
J.C. Penney announced the Martha Stewart deal in December. It is a centerpiece of its plan to carve its 1,100 stores into separate boutiques and part of J.C. Penney Chief Executive Ron Johnson's efforts to reverse market share loss.
J.C. Penney and Martha Stewart Living have said they will abide by the July injunction's restrictions but still plan to proceed with their broader agreement.
J.C. Penney's lawyer, Mark Epstein, told Oing the Macy's contract only covers products that carry the Martha Stewart mark. Items that are designed by Martha Stewart but do not bear her brand are fair game, including products within Macy's exclusive categories, he argued.
J.C. Penney spokeswoman Kristin Hays said the retailer was pleased with Thursday's ruling but declined further comment, citing the ongoing litigation.
In a statement, Macy's said the ruling will not affect its agreement with Martha Stewart Living.
"J.C. Penney has agreed that it won't sell Martha Stewart-branded merchandise in our exclusive categories as long as the MSLO injunction is in effect," the statement said. "We expect to continue to exclusively sell Martha Stewart-branded merchandise in categories such as cookware, kitchen utensils, bed and bath for the term of our contract, which currently extends to January 2018."
The case is Macy's Inc v. J.C Penney Corp Inc. 652861/2012, New York State Supreme Court, New York County.