Amazon.com will pay Toys R Us $51 million to settle a 5-year-old lawsuit over an agreement once touted as a way to strengthen both of their positions online. The settlement will be paid in the third quarter, and then all claims and counterclaims will be dismissed.

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Their failed partnership ended three years ago, and now their legal dispute has, too.

Amazon.com said Friday it will pay Toys R Us $51 million to settle a 5-year-old lawsuit over an agreement once touted as a way to strengthen both of their positions online.

The settlement will be paid in the third quarter, and then all claims and counterclaims will be dismissed, Amazon disclosed in a regulatory filing.

In 2000, Seattle-based Amazon and Toysrus.com, a division of Wayne, N.J.-based Toys R Us, entered into an agreement that was supposed to last through 2010, giving Toys R Us exclusive rights to sell some products on Amazon’s Web site.

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For Amazon, the deal was seen as the cornerstone of a new strategy to expand through partnerships rather than trying to sell everything itself. For Toys R Us, it provided access to a major online-sales channel.

Four years later, Toys R Us sued Amazon in New Jersey Superior Court, accusing Amazon of violating their agreement by letting other third-party merchants sell toys, games and baby products on its site. Amazon countersued, citing a “chronic failure” by Toys R Us to keep items in stock.

In a strongly worded 133-page judgment, New Jersey Chancery Court Judge Margaret Mary McVeigh ruled in 2006 that Amazon had breached the agreement and damaged Toys R Us’ unique position and ability to plan or craft strategies.

The two companies ended their online partnership, but the legal dispute continued.

This past March, a three-judge state Appeals Court panel directed the lower court to reconsider Toys R Us’ damage claims, while denying Amazon’s claims.

Amazon disclosed in April that Toys R Us was seeking damages of about $93 million, which it called “grossly overstated,” and expressed interest in appealing to the New Jersey Supreme Court.

Neither Amazon nor Toys R Us would comment about the settlement.

For the first quarter ended March 31, Amazon made a profit of $177 million, up 24 percent from a year ago, on sales of $4.9 billion. As of March 31, the company had $1.7 billion in cash and equivalents.

Privately held Toys R Us was acquired by three buyout firms in 2005.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com