Amazon.com, Wal-Mart Settle Suit –

SEATTLE – Five months after the start of a bitter legal battle that pitted a poster child of the upstart e-commerce industry against a giant brick-and-mortar retailer, Amazon.com Inc. and Wal-Mart Stores Inc. have settled their lawsuit.

The settlement brings an end to a long legal tale that started in October, in which Wal-Mart brought suit against Amazon in two states alleging trade secret law violations. Amazon filed a counter-suit for slander.

Under the agreement reached in early April, Amazon and drugstore.com, an affiliated company financed by Amazon venture-backer Kleiner Perkins Caufield & Byers, agreed to reassign former Wal-Mart information systems employees to different tasks. Neither Amazon nor Wal-Mart will be required to pay any damages.

In practice, however, the settlement will result in the reassignment of only one Amazon employee, said company spokesperson Bill Curry, who declined to name the employee or his position.

“There has never been any attempt or intention to steal Wal-Mart trade secrets by hiring Wal-Mart employees,” Mr. Curry said, adding that the e-retailer was pleased by the agreement and is now free to hire whomever it wishes.

John Doerr, a Kleiner Perkins partner, declined to comment on the case.

Wal-Mart filed suit in October in the Benton County Chancery Court in Arkansas against Amazon and former Wal-Mart employee Richard Dalzell, as well as against drugstore.com and Kleiner Perkins. Wal-Mart alleged that the e-retailer had violated trade secret laws by hiring an inordinate number of former Wal-Mart employees who had knowledge of the company’s computer and distribution systems (VCJ, December 1998, page 5).

However, the Arkansas court in early January ruled that Mr. Dalzell, who works in Amazon’s headquarters in Seattle, and drugstore.com, which had not yet begun to sell pharmaceuticals on the Internet, were outside its jurisdiction. Wal-Mart promptly refiled its suit in the Superior Court of Washington for King County in Seattle.

In response, Amazon in early March countersued for slander, defamation and libel, claiming Wal-Mart’s original suit was no more than an attempt to bully the competition.

The legal battle, viewed as the first major showdown between an electronic and traditional retailer in court, was hailed as a victory for the e-commerce industry by many observers.

“Whenever you challenge the established and the old ways of doing things, people try to push you back … sometimes in court,” Mr. Curry said.

Ken Cassar, an e-commerce analyst at Internet research firm Jupiter Communications Inc., was not surprised by the outcome, explaining that the case did not seem to have much merit, because Amazon’s distribution systems are quite different from Wal-Mart’s.

Mr. Cassar was disturbed by the monopolistic implications apparent in Wal-Mart’s case. “It sort of reminds me of baseball before free agency,” he said. “What [Wal-Mart] was basically saying was that you couldn’t take the skills you develop at one job and use them elsewhere.”

In a Wal-Mart statement, Senior Vice President and General Counsel Robert Rhodes said, “While we will not speak to the specifics of the settlement, the terms of the agreement provide us with the assurances of confidentiality we were seeking.”

Betsy Reithemeyer, a Wal-Mart spokesperson, did not return phone calls by press time.