Retailers’ Marriage in Mediation

Clicks and bricks retailers and Toys R Us are in mediation with hopes of saving their partnership after slapped a counter suit on its marketing partner and called for an end to their 10-year marketing marriage.

In a recent court filing, also asked for at least $750 million in damages from Toys “R” Us, if not more. The extent of damages depends on “the present value of the fixed and variable payments and lost shipping revenue” that it expected to take in from the agreement — which it says Toys “R” Us breached, the company said.

At issue is whether the two had an exclusive selling arrangement, and if so, if’s dalliances with other toy retailers breached it.

The selling agreement was struck in August of 2000 and called for to sell Toys “R” Us products through co-branded stores on’s Web site. The deal includes distribution, warehouse storage and logistics, customer service, hosting, custom software development and systems development and maintenance on the platform, plus a tab
level for “Toys and Games and Baby Products.”

But Toys “R” Us has grown frustrated with the selling arrangement with, for which it paid about $200 million, according to court documents.

In May, Toys “R” Us sued, claiming their deal meant that “is the only authorized seller of Toy and Game and Baby Products on the platform through 2010.” It accused of straying into alliances with other retailers who sell toys and gadgets after Toys “R” Us paid for exclusivity on the platform.

As part of its lawsuit against in May, David Schwartz, general counsel of Toys “R” Us, said, “As of May 17, 2004 there were more than 4,000 products in exclusive categories being offered through competitive retailers on the platform. This violates the letter and spirit of our agreement. We would be happy to compete with other vendors in these categories, but we are not willing to pay for exclusivity that we are not receiving.”’s counter suit claims that it disagreed with “the meaning of certain words” in its strategic alliance, “words that place significant and meaningful limits on [Toys R Us’s] ability under the agreement to be the exclusive seller of certain ‘toys and games’ and ‘baby products’ on the Web site.”

But that dispute would be easily resolved, the suit continued. “Less easy to resolve, however, is how’s business will be able to overcome the adverse effects of [Toys R Us’s] chronic failure, over the life
of the agreement, to meet its basic contractual obligations to: (1) Select for sale through the top 1,000 Toys and Games and the top 500 Baby Products; and (2) Maintain sufficient stock of such top-selling products to avoid disappointing customers who want to buy those products online, especially during the crucial holiday season.”

A Toys “R” Us spokesman said the case is without merit. Beyond that, the two sides aren’t talking in order to see if mediation can save this alliance.

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