EBay's Hiring of Former Amazon Executive
Under Noncompete Pact Sparks Court Battle

Wall Street Journal, 10/3/01
by Nick Wingfield

Amazon.com Inc. and Bay Inc., in a sign of an increasingly testy rivalry, are locked in a heated legal dispute over a former Amazon finance executive who was recently hired by eBay.

The dispute centers on Christopher Zyda, who resigned as the chief financial officer of Amazon's international division in early September to join eBay as a vice president in the Internet auction company's finance and investor-relations department. In a complaint filed in federal court in Seattle on Sept. 17, Amazon asked for injunctive relief stopping Mr. Zyda from working for eBay. Amazon cited a "noncompete" agreement he signed when he joined Amazon in 1998, an agreement Amazon alleged would preclude Mr. Zyda from joining a competitor such as eBay.

Amazon alleged it "will be irreparably harmed if Mr. Zyda is permitted to take to eBay the trade secrets and confidential information he possesses about Amazon.com's business plans and financial analyses."

Later last month, Amazon won the first round of its battle when the Seattle court granted its request for a temporary restraining order preventing Mr. Zyda from joining eBay. News of the case was reported in the Puget Sound Business Journal. Mr. Zyda, who still lives in Seattle, hasn't begun working for eBay, which is based in San Jose, Calif.

Despite seemingly distinct business strategies, Amazon and eBay have gradually been competing more closely. Amazon started an Internet auction business several years ago, but it is a distant competitor to eBay. More recently, though, Amazon has begun selling used books, electronics and other goods from the same Web pages on which it sells brand-new items. Amazon's used-goods initiative, dubbed Marketplace, has been far more successful than its auctions: Last quarter, Amazon said one out of 10 customer orders in the U.S. were for used goods.

At the same time, eBay's online marketplace, once dominated by collectibles traders, has veered decidedly toward the trading of items such as computers and electronics, including many new goods sold by liquidators and manufacturers. In its complaint against eBay, Amazon cited public comments from eBay executives indicating eBay's desire to be the top retailer in books, movies and music -- three of Amazon's primary categories.

Amazon is taking Mr. Zyda's defection more seriously than other defections. An Amazon spokeswoman said this was the first time in the company's history that it had sought legal action against an employee who left to join a competitor. In contrast, Amazon hasn't taken action against a handful of former Amazon executives who recently joined Microsoft Corp., whose authentication technology competes with Amazon technologies. Mr. Zyda "had deep knowledge and extensive information about our strategic planning in areas where we compete directly with eBay," the Amazon spokeswoman said.

Whoever wins the tussle over Mr. Zyda may hinge on where the case is ultimately heard. Even before Amazon took legal action in Seattle, eBay asked a state court in California for an injunction barring Amazon from preventing Mr. Zyda's employment with eBay. EBay's request, which is still pending, was driven by the fact that employee noncompete agreements are generally considered unenforceable under California law. Rebecca Eisen, a labor and employment attorney at Brobeck Phleger & Harrison LLP in San Francisco, said it's not always clear which state's laws prevail in such cases. "California has been pretty successful in making sure their public policy is enforced here," Ms. Eisen said.

In its complaint, eBay said that Mr. Zyda had given Amazon executives "unambiguous assurances" that he would honor his confidentiality obligations with Amazon.

Amazon itself has been targeted for hiring from other companies in the past. In 1999, Wal-Mart Stores Inc. filed a lawsuit against Amazon and other defendants for recruiting Wal-Mart employees in an alleged bid to copy Wal-Mart's information systems. Amazon and the other defendants settled the suit with Wal-Mart later that year by agreeing to reassign former Wal-Mart employees to tasks different from their assignments at Wal-Mart.