Amazon.com, Wal-Mart settle lawsuit

Several former Wal-Mart execs will be reassigned at Amazon and Drugstore.com as part of a settlement that on legal expert calls a victory for the Web retailers.

In what one legal expert characterized as a victory for Amazon.com and Drugstore.com, the online retailers have settled their legal dispute with Wal-Mart without having to abide by any court injunctions. The retail giant had sued the two online ventures, accusing them of recruiting Wal-Mart execs in order to steal trade secrets.

As part of the settlement, one former Wal-Mart employee will be assigned to a new position at Amazon and eight others will be restricted in their work assignments.

The lawsuit, filed in January, accused the two companies of luring away 15 employees with knowledge of Wal-Mart's information systems. Amazon countersued the following month. A similar lawsuit by Wal-Mart filed in Arkansas was dismissed.

Rich Gray, an intellectual property attorney with San Jose firm Bergeson, Eliopoulos, Grady & Gray, said the lack of an injunction agreement is "significant."

"In a trade-secret lawsuit for the plaintiff to walk away without getting any kind of injunctive relief from the court or through the agreement is a victory for the defendants," Gray said.

Wal-Mart spokeswoman Betsy Reithemeyer disagreed with Gray's assessment, saying that Wal-Mart received in the settlement everything that it had asked for when it had originally filed the case.

"We were prepared to go to the mat with this," Reithmeyer said. "Obviously Amazon and Drugstore want to move on for other reasons."

Amazon owns about 46 percent of Drugstore.com, an online pharmacy.

Amazon will reassign one employee, who now works in the company's information systems department, to another position within that department, according to spokesman Bill Curry. Amazon's chief information officer, Richard Dalzell, the former Wal-Mart vice president of information systems who was also named in the lawsuit, will remain in his position.

Six of the nine employees work for Amazon and the other three are Drugstore.com employees. All the employees involved will be restricted from working on specific areas within information systems, Curry said. Also, any new information systems employees hired by the two companies from Wal-Mart will be prohibited from doing the same work for Amazon or Drugstore.com that they did at Wal-Mart for one year.

"It's a compromise agreement that gives them some assurances that their former employees will not be disclosing trade secrets," Curry said.

According to Reithemeyer, the agreement also restricts Amazon and Drugstore.com from recruiting--but not from hiring--Wal-Mart employees and requires the defendants to return to Wal-Mart any property still held by its former employees.

The settlement ends all legal action between the parties.

Drugstore.com spokeswoman Debbie Fry Wilson said her company was largely unaffected by the settlement. Although a "handful" of former Wal-Mart employees work on Drugstore.com's technology team, Wilson said the company won't reassign those executives to comply with the settlement.

Wilson said the settlement will also have little effect on Drugstore.com's hiring practices. The online drugstore will continue to be able to hire the "best people in the marketplace," even if they work at Wal-Mart, she said.

In addition to Amazon, Drugstore.com and Dalzell, Wal-Mart's suit also named venture capital firm Kleiner Perkins Caufield & Byers, which funded both Amazon and Drugstore.com. Amazon counter-sued Wal-Mart in late February.

As part of the settlement agreement, the defendants agreed to return to Wal-Mart any property still held by its former executives or vendors. Neither side will pay damages. The settlement agreement includes all parties to the case.

Amazon and Wal-Mart shares jumped on the news. Amazon's stock closed up 15.5 points to 186.5. Wal-Mart shares rose 2.125 to 95.375.

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