Ruling Near, J.C. Penney Capitulates to Macy's Days before a judge was expected to rule in the long-running legal dispute between Macy's and J. C. Penney over the right to sell branded Martha Stewart housewares, Martha Stewart Living Omnimedia and J. C. Penney scaled back the merchandising agreement at the center of the battle. Under the revised agreement, J. C. Penney will not sell kitchen, bed and bath products designed by Martha Stewart that were sold under the label "JCP Everyday." But it will continue to market other Martha Stewart merchandise, including window treatments, lighting and rugs under the label "MarthaHome." J. C. Penney will also return 11 million common shares that it acquired in the initial agreement and it will give up its two seats on the Martha Stewart board, according to the terms announced on Monday. Macy's, which had sued both J. C. Penney and Martha Stewart charging that they breached an exclusivity agreement that Macy's had with Martha Stewart covering all kitchen, bed and bath merchandise, declared immediate victory. "It was a complete surrender," Theodore M. Grossman of the Jones Day law firm, the lead counsel for Macy's in the case, said after the agreement was announced. Total victory. The agreement came after months of a trial before Judge Jeffrey K. Oing of New York's Supreme Court, who recently urged the parties to resolve their dispute and set a deadline of Friday for a possible ruling. The effect on the other two companies, both of which have been struggling, was less clear. Macy's has said in the past that the Stewart line was a best seller in home goods, although some of her other ventures - like the Martha Stewart Living magazine - have declined. Penney's initial agreement with Ms. Stewart, 71, was initiated by the company's former chief executive, Ron Johnson, to inject cache into the midmarket department store chain with exclusive licensing agreements. As part of his grand strategy, he was planning to open a "store within a store" featuring Martha Stewart products designed solely for Penney. That plan was ended when Mr. Johnson was fired earlier this year, after his ideas failed to lure customers into the stores, and may have alienated a significant portion of a once-loyal customer base. An estimated $4 billion in overall sales evaporated in 2012. Even though the company's previous chief executive, Myron E. Ullman III, was brought back to try to rescue the longstanding Penney's chain, the company has continued to falter and stumble. Several moves in recent months that have shaken investors, some of which have jumped ship, and have worsened uneasiness in the markets. William A. Ackman, of Pershing Square Capital Management, sold his 18 percent stake in the company in August, after publicly feuding with company executives over what he viewed as the lack of a strategy for a turnaround. Penney's bleak outlook was further exposed when it announced just a few weeks ago that it would sell as much as 96.6 million in new common shares, signaling its weakening forecasts and potential worries about its vendor credit as it sought to shore up its capital reserves. The company's stock price is well below its 2007 share price of $49.63 on Oct. 22, 2007. It was $6.42 a share on Monday. J. C. Penney declined to comment on limiting the agreement with Ms. Stewart's company, beyond a statement released from Mr. Ullman. "We are happy to be moving forward and continuing to provide our customers with quality products from the MarthaHome collection, which includes MarthaWindow, one of our best-selling lines of window treatments," Mr. Ullman said in the statement. Among other things, the new agreement will reduce the level of guaranteed minimum royalties that J. C. Penney is obligated to pay to Ms. Stewart's company. Under the original contract, the company was to receive a minimum of more than $200 million in royalties. Neither company would disclose the new, lower minimum. Ms. Stewart, the nonexecutive chairwoman of Martha Stewart Living Omnimedia, released a statement saying merely, "We are pleased to announce this revised commercial agreement. We are designing excellent products for 2014, and we look forward to seeing them in stores and online at jcp.com. A spokeswoman for her company added: "The royalties in this new agreement are significant and there is a lot of value to getting our stock back. In addition, we can't comment on what the judge will do, but we believe this revised agreement resolves the concerns that were before the court, so we hope this resolves the issue. And at the same time, we are looking forward to continuing to work with Macy's for many years to come. Mr. Grossman indicated that Macy's would not yet abandon the court case. We had to sue. It cost Macy's a lot to do that," he said. "We don't know the full damages yet, but Macy's suffered not only having to bring the lawsuit but also J. C. Penney sold goods" in a category that Macy's had exclusive rights to, he added.