Class Action certified against Netflix and Wal-Mart

Posted on: January 5th, 2011 by Steve Larson
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A federal judge granted class-action certification to Netflix, Inc.  subscribers in their lawsuit against the company and Wal-Mart Stores, Inc. for an alleged agreement to monopolize the DVD market.   U.S. District Judge Phyllis Hamilton said that the subscribers bringing suit against the companies in 2009 were “united by common and overlapping issues of fact and law,” in an order dated Dec. 23 and filed in federal court in Oakland, California.

Wal-Mart and the plaintiffs reached a preliminary settlement of the lawsuit that could pay them as much as $40 million in cash or equivalents, according to a motion filed in federal court in Oakland Dec. 14, 2010. A hearing on that motion will be held on Feb. 9, 2011. The settlement doesn’t include Netflix.

The plaintiffs charged that Netflix and Wal-Mart conspired in 2005 to divide the market for selling and renting DVDs in order to reduce competition. The companies formed an agreement in which Wal-Mart.com would stop renting DVDs online and Netflix wouldn’t offer them for sale. The agreement came after Blockbuster Inc. began offering DVD rentals online, according to the lawsuits.

“As a result, millions of Netflix subscribers allegedly paid supracompetitive prices,” Hamilton said in her order.

According to the lawsuit, the alleged conspiracy began when Reed Hastings, executive officer of Netflix, met John Fleming, then the CEO of Wal-Mart.com, for dinner in January 2005 to discuss how to reduce competition in the DVD market in the U.S.  At that time Netflix, based in Los Gatos, California, and Wal-Mart.com were competitors in online DVD rentals.