If you sign a licensing agreement to sell someone else’s products, but that person already has an exclusive license with a third party to sell the same products, you could be legally on the hook.
That’s a lesson that J.C. Penney learned the hard way, after it signed an agreement with Martha Stewart to sell a variety of her housewares in special dedicated sections of its stores.
The problem was that Martha Stewart had previously signed an exclusive licensing agreement with Macy’s covering sales of her kitchen, bed and bath products. So while J.C. Penney could legally sell other Martha products such as window treatments, rugs and lighting, sales of the kitchen and bath products violated the agreement.
Macy’s responded by suing Martha for breaking the contract. But it also sued J.C. Penney. Even though Penney had nothing to do with the original contract between Macy’s and Martha, Macy’s claimed that Penney was legally responsible because it knew about the agreement and deliberately interfered with Macy’s rights under it.
Recently, a New York judge sided with Macy’s. Next, the court will have to decide how much Penney has to pay as damages; Macy’s will apparently ask for more than $10 million.