The court in New Jersey found that Amazon breached the implied covenant of good faith and fair dealing with regard to exclusivity, and said that this allowed the toy retailer to terminate the arrangement and recover damages.
Toys ‘R’ Us had exited the arrangement in 2006, after a lower court had ruled that although no specific contract provision was technically breached, Amazon had in fact denied the retailer exclusive rights.
At the time, the judge had declined to award damages, saying the rules did not allow putting a price-value on exclusivity. However, the appeals court has now ruled that while Toys ‘R’ Us was in the right, it is also entitled to the full benefit of the deal - including damages, which could amount to millions of dollars.
The dispute relates to the agreement made by the two companies in 2000, when they signed a 10-year contract to create a co-branded online shop. Toys ‘R’ Us offered to pay $50m a year, plus additional fees and commissions, while Amazon would sell the products under a separate tab on its website. The toy retailer also had the right to designate exclusive items that were not to be sold by Amazon, which led to a conflict when Amazon tried to expand the range of its offerings.