* Month-long mediation effort fizzles
* Macy's claims has exclusive right to sell some items
* Part of fight centers on champagne flutes
By Karen Freifeld
NEW YORK, April 8 (Reuters) - Macy's Inc and J.C. Penney Co Inc were back in court on Monday in their fight over Martha Stewart, with Macy's claiming that some of the items Penney has begun selling on its website infringe on its exclusive deal with the home goods guru.
After a month-long mediation effort failed to yield a settlement, the trial resumed in New York state court over whether Macy's has an exclusive right to sell certain Martha Stewart home goods products.
The legal battle has hampered a key part of turnaround plans for Penney, which opened the first of its in-store home goods boutiques last week for designers Jonathan Adler and Michael Graves, and plans to open Martha Stewart shops in the coming weeks.
J.C. Penney CEO Ron Johnson has repeatedly told investors that the retailer's revamped home section would put the company back on the path to growth. Sales fell 25 percent last year.
Ahead of the Martha Stewart shop launch, Penney has begun selling some Stewart products on its website, including a set of four champagne flutes for $10 which Macy's told the court on Monday overlaps with her collection there.
"The basic shapes and designs are the same," Macy's lawyer Ted Grossman told the judge. "They compete directly against each other."
Penney's lawyer, Mark Epstein, said he had only just found out about Grossman's claim. Eric Seiler, a lawyer for Martha Stewart Living Omnimedia Inc, said that the Stewart flutes sold by Penney are disposable plastic products and that he thinks Grossman is wrong.
Justice Jeffrey Oing said he would allow them to look into the matter.
Oing last month ordered Macy's, Penney and Martha Stewart Living Omnimedia into mediation in hopes of resolving the dispute while the non-jury trial was in recess because of scheduling conflicts.
Macy's claims Martha Stewart Living granted it the exclusive right to manufacture and sell the Martha Stewart-branded home goods in some categories under a 2006 agreement that, with a renewal last year, runs until 2018.
Macy's sued Martha Stewart Living Omnimedia last year after it signed an agreement to sell Martha Stewart-branded products at J.C. Penney. Macy's claims the agreement breaches its contract to sell certain products exclusively at Macy's.
Macy's also sued J.C. Penney over the deal. Martha Stewart is the No. 1 home brand at Macy's.
Last year, Oing issued a preliminary injunction against Martha Stewart Living, barring it from selling some branded items at J.C. Penney. Penney agreed to abide by the injunction.
LINGERING BATTLE
The lingering battle has been a blow to Penney, which agreed to hold off on its plan to sell Martha Stewart bedding, cookware and bath items, which are covered in the Macy's deal.
Martha Stewart, 71, Macy's Chief Executive Terry Lundgren and J.C. Penney CEO Johnson all have testified.
Lundgren testified that Stewart did not tell him she was doing a deal with J.C. Penney until the night before it was announced publicly, while Stewart professed surprise at Lundgren's angry reaction to the deal.
Johnson, who built up Apple Inc's retail business before moving to Penney in 2011, testified that Martha Stewart was a key part of his plan to reinvent the retailer, saying the brand would help to drive sales and increase market share.
The company's turnaround plan, criticized for missteps on pricing strategy, has been "very close to a disaster," according to hedge fund manager William Ackman, the J.C. Penney board member who handpicked Johnson. Ackman spoke on Friday at an investment conference sponsored by Thomson Reuters.
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.
Penney shares were up 1.4 percent at $15.67 on the New York Stock Exchange at midday on Monday, while Macy's shares were up 1.2 percent at $43.90.
