Wal-Mart Stores Inc. has reached a preliminary settlement in a putative class action brought by customers who claim the retail giant and Netflix Inc. illegally carved up the market for online DVD rentals and sales. Wal-Mart and the Plaintiffs filed a joint motion in the U.S. District Court for the Northern District of California asking the judge to bifurcate the suit and stay all Wal-Mart-related deadlines while the settlement awaits court approval. Wal-Mart was facing a class certification hearing in the multidistrict litigation when the settlement was reached.
The Plaintiffs, customers of Netflix and Blockbuster Inc., say the agreement between Wal-Mart and Netflix affected millions of customers who would have paid lower online DVD-rental fees had competition continued. Netflix will remain as a Defendant in the lawsuit. The Plaintiffs claim that Wal-Mart and Netflix came up with a scheme to drive up prices. According to the Complaint, Netflix CEO Reed Hastings and former Walmart.com CEO John Fleming met to discuss eliminating competition in the DVD rental and DVD sales markets in January 2005. This came about at a time when the two were direct competitors for online DVD rentals. The two allegedly reached an agreement under which Wal-Mart would withdraw from the online DVD rental market and Netflix would stop selling DVDs and promote Wal-Mart as a shopping destination for new DVDs.
Prior to the alleged deal, Netflix and Blockbuster had been involved in a price war, according to the Plaintiffs. It’s claimed that the deal substantially reduced competition in the rental market. In July, Northern District Judge Phyllis J. Hamilton denied a motion by Wal-Mart and Netflix to dismiss an amended Complaint from the Blockbuster customers. Those Plaintiffs did not sue Blockbuster, but claim the alleged deal drove up their prices too. Netflix and Wal-Mart contended that the basic conspiracy claims at the heart of the case are “conjectural and unsupported.”
Judge Hamilton had previously dismissed the Blockbuster customers’ first amended Complaint with prejudice, ruling that the Plaintiffs had failed to satisfy three necessary factors of antitrust standing: directness of the injury, speculative nature of the harm and complexity in apportioning damages. The Blockbuster Plaintiffs filed their second amended Complaint in March after Judge Hamilton granted their motion for reconsideration.
Source: Law 360
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