E-tail giant Amazon and toy retail giant Toys “R” Us have finally — and officially — broken up after five years of sparring in the courts, with Amazon agreeing to pay $51 million to settle a lawsuit filed by Toys “R” Us.
In a document filed with the Securities and Exchange Commission, Amazon said it will pay the sum in the third quarter of 2009, though the “unanticipated” expense would be charged to “other operating expenses” during its the second quarter.
The settlement winds down a tangle of litigation that began five years ago. Toys “R” Us’s lawsuit, filed in 2004, sought to terminate the two firms’ 10-year, $200 million cobranded marketing deal over a dispute stemming from whether Amazon was upholding its end of the agreement. Not long after Toys “R” Us filed its original claim, Amazon filed a counterclaim as well as an official request to terminate the partnership.
Both Amazon and Toys “R” Us declined to comment on the settlement.
In March 2006, a Chancery Court in New Jersey ruled in favor of Toys “R” Us, which effectively ended the retailing heavies’ marriage. But how much, if any, Amazon still owed Toys “R” Us had yet to be decided.
In the end, the dispute — and the divorce — came down to questions of whether Amazon.com had been properly giving exclusivity to Toys “R” Us on its site. Wayne, N.J.,-based Toys “R” Us had claimed in its initial suit that the two had an exclusive selling arrangement since 2000, but that it had begun questioning Amazon.com’s dalliances with other toy retailers.
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.
But in addition to selling items from ToysRUs.com on its site, Amazon.com had also sold toys in its children’s section from other third-party toy sellers, such as eToys.com and toys from The Discovery Channel.
The original lawsuit contended that Toys “R” Us grew frustrated with the selling arrangement, for which it paid about $200 million. The lawsuit claimed the two companies’ deal meant Toysrus.com became “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.
However, Amazon.com had argued that it was offering toys that were not offered by Toys “R” Us, nor by its baby-oriented 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 had been entitled to some exclusivity in the deal and hadn’t been getting it.
Implications
Given Amazon’s recent performance, however, this week’s settlement isn’t likely to have a huge impact on the online juggernaut.
Despite the recession, Amazon posted a 24 percent jump in profits for the first-quarter, giving the company breathing room to focus on amping up business rather than focusing on survival.
While competitors such as eBay struggle to maintain market share in the midst of significant restructuring, Amazon continues to fine-tune its core customer experience strategy, expand services for third-party online sellers and roll out successful new product lines, such as the Kindle series.
At a recent shareholder’s meeting, CEO Jeff Bezos attributed Amazon’s success to a laser-focus on customer experience, and went on to tout the many offerings of the e-commerce giant — from the Kindle e-reader to its elastic cloud Web services.
