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Even though Wal-Mart Stores Inc. and Amazon.com settled their high-profile lawsuit in April, the legal battles between Internet retailers over trade secret infringements are by no means over. In fact, just the opposite may be true.
Because the industry is so young, many e-commerce start-up companies are actively recruiting experienced executives from established retailing chains and systems integration firms. But to prevent the start-ups from gaining access to proprietary information, established companies are more likely to turn to the courts to enforce confidentiality agreements signed by former employees or prevent those executives from building duplicate systems if hired away by a competitor.
A case in point is Wal-Mart. The Bentonville, Ark.-based retailer sued Seattle-based Amazon.com last October, claiming that Amazon.com had gained access to secret information pertaining to Wal-Mart's advanced order fulfillment and management system in hiring away executives including Jimmy Wright, a Wal-Mart logistics management vice president, and Richard L. Dalzell, the chain's former vice president in charge of information systems. The out-of-court settlement stipulates that the former Wal-Mart executives now employed by Amazon.com will be shifted into new jobs and that some undisclosed proprietary information will be returned to Wal-Mart.
But even though Wal-Mart and Amazon.com were able to settle their legal differences, more trade secret suits are likely to hit the Internet retailing industry. "Trade secret disputes in areas such as inventory management and software development will continue," says Edward Gray, a partner and e-commerce lawyer in the Washington, D.C., office of Fitch, Even, Tabin & Flannery. "The Internet is moving along so fast that the boundaries of intellectual property and copyrights are still being set. E-commerce companies will be become more proactive on not letting their trade secrets get out."