Amazon, B&N settle lawsuit

Rival online booksellers (BKS) and Amazon.com (AMZN) announced today that they have agreed to settle a lawsuit filed by Barnes & Noble.

Although the terms of the settlement were not disclosed by either company, analysts see the agreement as a victory for Amazon.com, and for electronic commerce in general.

Barnes & Noble filed the lawsuit against start-up Amazon.com on May 12, the same day Barnes & Noble unveiled its Web site and a day before Amazon launched its initial public offering. One analyst called the one-two punch "legal jousting," while another labeled it "a marketing nightmare."

The suit by Barnes & Noble stated that Amazon.com, by claiming in ads that it is the "world's largest bookstore," engaged in false advertising. Amazon.com fired back by alleging that Barnes & Noble should begin paying state taxes in states where it has stores.

Bob Chatham, an analyst with Forrester Research, called Amazon's legal move "brilliant," but agreed that the settlement was the best move for both companies.

"From a business standpoint it [the settlement] was a wise move. It was not doing Internet commerce as a whole any good," Chatham said.

By taking advantage of the ambiguities in the tax laws, Amazon.com was able to stare down a company with much larger resources.

"Amazon has held their own," Chatham noted. "They took the initial barrage, and they did come out ahead. They didn't cave in to Barnes & Noble's legal maneuvers."

Melissa Bane, an analyst with The Yankee Group, believes that the settlement was the best solution to a dispute that was a public relations disaster for Barnes & Noble.

"It reflected poorly on Barnes & Noble more than anything else," she said. "It's more positive business practice to let the numbers speak for themselves."

Bane called Barnes & Noble a "Goliath" to Amazon's "David." "Amazon is one of those unique Internet brands that people equate with a start-up success story," she said.

According to the statement released by Amazon, "The parties simply decided that they would rather compete in the marketplace than in the courtroom."

Amazon and Barnes & Noble's Internet businesses have yet to turn a profit, due to start-up costs and marketing expenses. Analysts don't expect either companies' Internet businesses to be profitable before the year 2000.

"Let's get down to business and stop playing like children," Bane concluded.