Can Amazon Stop Target From Learning Its Supply Chain Secrets?

By Markets Fool.com

Amazon has the most sophisticated delivery infrastructure of any retailer in history.

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The company has built up the ability to deliver a package within two days anywhere in the Unites States. It also has same-day capacity in some markets and pioneering deals for Sunday delivery in parts of the country. This incredible capacity has been a slow build, with the online retailer is doing everything from building warehouses around the country to mixing in robots alongside human workers. Amazon's supply chain includes predictive technology that helps it know what customers are going to order before they actually order it.

Of course, in the long run, competing with Amazon requires rivals like Target to step up infrastructure spending in order to build a comparable supply/delivery chain. Doing that is an expensive, lengthy task, but the brick-and-mortar chain wants to turbocharge its efforts by hiring away a key Amazon executive.

Amazon wants to stop that, and it has filed a lawsuit against its former vice president of operations, Arthur Valdez, to prevent him from joining Target, saying it violates a non-competition agreement he signed.

Amazon uses humans and robots in its warehouses. Image source: Amazon.

What is the suit charging?
During his time at Amazon, Valdez worked in a variety of supply chain positions, culminating in him overseeing the retailer's international supply chain expansion. The lawsuit, which was filed against Valdez and not Target, charges that he is breaking a non-compete agreement that said he could not compete with Amazon for 18 months after leaving the company.

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The lawsuit makes it clear that Amazon believes Valdez "cannot lead Target's supply chain operations without referencing confidential information learned and developed by him at Amazon to drive superior performance in exactly the same areas." Further, the suit says that the language in the Feb. 29 Target press release announcing his hiring makes it clear that he will be leading "Target's supply chain transformation including planning, distribution, and transportation."

Target does not believe Valdez has violated any agreement, according to a statement it made to Reuters. "We have taken significant precautions to ensure that any proprietary information remains confidential and we believe this suit is without merit," Reuters quoted Target spokeswoman Molly Snyder as saying.

What happens next?
Valdez had a March 28 start date with Target, and as of that morning, no action had been taken by the Seattle court where Amazon filed its suit that would prevent that from happening. Target issued the statement above to multiple media outlets, but citing pending litigation, it has refused further comment.

In some ways, while Amazon may win its lawsuit, by the time it does, the damage may have already been done. Amazon alleges in its lawsuit that Valdez has already conveyed important information to Target during his interview process. "Mr. Valdezs behavior at Target with respect to Amazons confidential information before being hired there highlights the injury to Amazon from Mr. Valdezs work for Target if he works there," the lawsuit states, according to a report in GeekWire.

Non-competes are notoriously hard to enforce, and in this case, even if Valdez is found at fault, which could lead to him having to pay Amazon's legal bills in the case, it's impossible to put the genie back in the bottle. This seems likes a big risk for the employee, with very little downside for Target. Even if Valdez loses and has to sit out 18 months, as per his Amazon contract, it seems likely he could have already set his new employer on a changed path -- it's impossible for his new associates to unlearn anything he has shared with them.

So, why is Amazon suing?
In many cases, employers file lawsuits over non-compete clauses not because they expect to win, but as both a delay tactic and a warning to other employees.

In this case, Amazon has probably already lost -- at least in terms of keeping some of Valdez's knowledge away from a rival. Still, any roadblocks the company can throw up -- even if it's simply forcing Target to have to operate using the "significant precautions" it mentions above -- extends its edge.

This is a long game, and Amazon has a big lead. Valdez may be a game changer, and trying to enforce the non-compete may impede some of his effectiveness, which buys Amazon time. Either way, unless Target gets drawn into the lawsuit, the physical retailer has scored some points, but it remains to be seen if it can make itself a true competitor.

The article Can Amazon Stop Target From Learning Its Supply Chain Secrets? originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He is pretty sure he has never decorated an Easter egg. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.