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Toys 'R' Us Prevails in Amazon.com Divorce

Toys "R" Us is leaving Amazon.com.

The children's toy retailing giant said today that a Chancery Court in New Jersey ruled in its favor as part of a lawsuit against Amazon.com. The ruling effectively ends a 10-year, co-branded marketing marriage between the retailing heavies.

In the end, the dispute -- and the divorce -- came down to exclusivity, whether Amazon.com was giving it to Toys "R" Us on its Web platform.

The Wayne, N.J., Toys "R" Us filed suit against Amazon.com in 2004, claiming that the two had an exclusive selling arrangement, and questioned Amazon.com's dalliances with other toy retailers.

In addition to selling items from ToysRUs.com on its site, Amazon.com also sells toys in its children's section from other third-party toy sellers, such as eToys.com and toys from The Discovery Channel.

According to court documents, the August 2000 agreement called for Amazon.com to sell Toys "R" Us products through co-branded stores on Amazon.com.

The deal included distribution, warehouse storage and logistics, customer service, hosting, custom software development and systems development and maintenance on the Amazon.com platform, plus a tab level for "Toys and Games and Baby Products."

The lawsuit contended that Toys "R" Us grew frustrated with the selling arrangement with Amazon.com, for which it paid about $200 million, and questioned whether exclusivity was part of the deal.

The lawsuit claimed their deal meant Toysrus.com "is the only authorized seller of Toy and Game and Baby Products on the Amazon.com platform through 2010."

It accused Amazon.com of straying into alliances with other retailers who sell toys and gadgets after Toys "R" Us paid for exclusivity on the Amazon.com platform.

At the time of the lawsuit, Toys "R" Us counted more than 4,000 products in exclusive categories that were offered through competitive retailers on the Amazon.com platform.

No fair, said the toy retailer, and started the corporate equivalent of divorce proceedings, saying it's not interested in paying for exclusivity that it's not receiving.

Patty Smith, a spokeswoman for Amazon.com, said the company strongly disagrees with the judge's ruling in the case. She said Amazon.com is in the process of reviewing the ruling and its options at this point.

"Regardless of the decision, we're committed to ensuring a great selection of toys at great prices for our customers," she added.

As to whether Amazon.com would appeal the decision, Smith said the company was still reviewing the decision and its options. Amazon.com does not expect to update guidance that it has already provided about earnings outlooks.

The ruling is effective within 90 days. When asked if ToysRUs.com would launch its own Web site, a spokeswoman for Toys "R" Us said the timeframe for a re-launch was not set. But the company's statement today gave every indication that the groundwork is under way.

"We have been preparing for today's decision and expect to provide seamless online access for our customers," said John Sullivan, senior vice president of Toys "R" Us.

"Tighter integration of our online business with our brick-and-mortar locations will enhance customer service by creating a more unified Web and retail shopping experience."

Amazon.com had essentially argued that it was offering other toys that were not offered by Toys "R" Us, as well as its Baby subsidiary "BabiesRUs.com." Both sides argued over who was keeping proper data to ensure that inventory was properly covered.

Following a countersuit by Amazon.com and counterclaims on both sides, the judge ruled that Toys "R" Us was entitled to some exclusivity in the deal and wasn't getting it.

David J. Schwartz, general counsel for Toys "R" Us, said in a statement that the goal of the suit was to protect the Toys "R" Us brand, "while continuing to provide a positive shopping experience for our online customers. This ruling allows us to do that."