Some observations on the ongoing trial in New York Supreme Court involving Macy’s, J.C. Penney (“JCP”) and Martha Stewart Living Omnimedia (“MSLO”), as the dispute pertains to the franchise and distribution industry:
- Carveouts to exclusivity clauses should be viewed warily by the party purportedly receiving exclusive rights. In the Macy’s/JCP/MSLO dispute, MSLO had granted Macy’s the exclusive right to market certain products (such as cookware and bedding) sold by MSLO. The exclusivity clause in the Macy’s/MSLO agreement, however, contained an exception permitting MSLO to sell the products via the internet, television or at any retail store branded with the Martha Stewart Living name and operated by the company or its affiliates or which “prominently” featured the brand. JCP acquired a minority interest in MSLO; the parties then sought to utilize the exception to Macy’s exclusive retail sale rights by placing MSLO “boutiques” inside JCP stores to sell those same products.
- Exceptions to exclusivity clauses can be found in many franchise agreements (e.g., outlets located within the territory, but inside airports or malls) and distribution and sales representative agreements (e.g., internet sales, house accounts or national accounts). If an exception is overly broad or vague, the exception can severely erode the expectation of exclusivity.