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Toysrus.com sues Amazon over online partnership

By Monica Soto Ouchi
Seattle Times technology reporter

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Amazon.com and Toysrus.com aren't playing well together.

The online retailers agreed in August 2000 to run co-branded toy and baby stores online — a deal that became the cornerstone of Amazon's strategy to expand its selection through partnerships with other retailers.

But Toysrus.com yesterday sued Amazon, alleging it violated that arrangement by allowing other retailers to sell toys and baby products on Amazon's site. Toysrus.com, a division of Toys R Us, has paid more than $200 million since the deal began for the right to exclusivity, according to the lawsuit.

Amazon said in a statement that it has focused on increasing selection for customers "consistent with our contractual commitments" and that it believes the allegations are "without merit." A company spokeswoman declined further comment.

Amazon is to hold its annual shareholders meeting at 9 a.m. today at Bell Harbor Conference Center in Seattle.

The lawsuit comes days after representatives from both companies met in Oakland, Calif., with prominent mediator Randall Wulff, principal of Wulff, Quinby & Sochynsky, Toysrus.com general manager Greg Ahearn said.

Wulff mediated the $1.1 billion antitrust settlement between Microsoft and the state of California, according to a biography on the law firm's Web site. Last month, he was selected to lead the panel that would decide the property-damage claims for the World Trade Center that arose from the Sept. 11 attacks.

"Both sides came in looking for an amicable solution," Ahearn said of the mediation. "Unfortunately, at the end of those (two) days, we were not able to find a solution that met both of our needs."

In the lawsuit, filed Friday in Superior Court in New Jersey, Toysrus.com claimed Amazon has roughly 4,000 toy, video-game and baby products that are listed on behalf of third-party retailers and should fall under the exclusivity agreement.

It also said Amazon plans to introduce technology that would allow third-party merchants to offer more products on Amazon's site, a practice Toysrus.com claimed would render its exclusivity arrangement "utterly meaningless."
 
A search for the board game Pictionary Jr. on Amazon's site yesterday offered up links to buy the product through Toysrus.com in the toys-and-games section, and through eSportsonline from the sports-and-outdoors site.

Toysrus.com reported an $18 million operating loss on $376 million in sales last year, according to regulatory filings.

The two companies originally partnered in time for the 2000 holiday season — after Toysrus.com suffered from poor fulfillment in the 1999 season, causing many of its orders to hit doorsteps after Christmas, and Amazon miscalculated inventory and had to write off $34 million in toys it couldn't sell.

Under the 10-year deal, Toysrus.com agreed to select, purchase and manage inventory, while Amazon would handle site development, order fulfillment and customer service.

Analysts lauded the partnership, saying it combined the strengths of each company. Amazon has since broadly expanded its selection by partnering with other online retailers and by listing products from smaller, independent merchants.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com