Why Amazon Is Suing Toys 'R' Us

Leading Internet retailer Amazon.com Inc. on Monday countersued Toy "R" Us Inc., alleging breach of contract. The online retailer is seeking more than $750 million in damages or, potentially, the termination of the contract itself.

A little more than a month ago, Toys "R" Us sued Amazon because, Toys "R" Us lawyers said, their client no longer is the sole seller of certain categories of toys on Amazon.

Amazon alleges that its business has been harmed by Toys "R" Us' "chronic failure" to meet its obligations. For instance, Amazon claims, Toys "R" Us has had trouble maintaining sufficient stock. According to court papers, Toys "R" Us has been out of stock on more than 20% of its most-popular products. The company claims that Toys "R" Us' inventory problems handicap Amazon in its battle with Wal-Mart Stores Inc. and others.

The lawsuit also dismisses Toys "R" Us' exclusivity argument, stating that the pair's governing agreement, signed in 2000, allows for exceptions. Amazon asserts that the agreement makes toys and games and baby products non-exclusive categories.

The complaint also states that Amazon and its third-party affiliates have the absolute right to sell any toys and games or baby products online so long as sales do not constitute 3.5% of Toys "R" Us' annual revenue from the sale of selected exclusive products. The complaint states that no affiliated vendors even approach this percentage.

Key among Amazon's goals is a declaration that it's entitled to immediately launch a service that enables third-party vendors themselves to post items for sale on Amazon. Toys "R" Us' original lawsuit seeks an injunction to prevent Amazon from deploying this new technology.

An Amazon spokeswoman declined to comment about the case.

Asked to comment, a Toys "R" Us spokeswoman offered this prepared statement: "We believe this counterclaim has no merit. We are currently engaged in mediation and have agreed to avoid additional commentary."