A federal judge has granted class action status to a suit alleging that Netflix and Wal-Mart conspired to monopolize the DVD market.
Judge Phyllis Hamilton, of the U.S. District Court for the Northern District of California, wrote in her decision that the plaintiffs are “united by common and overlapping issues of fact and law.”
The suit, filed in 2009, claims Netflix and Wal-Mart entered into an “unlawful market allocation agreement” in 2005, designed to neutralize Blockbuster's entry into the online DVD rental market the previous year. According to the plaintiffs, the agreement provided that Wal-Mart would stop offering rental DVDs online, and Netflix would stop selling them. This arrangement was intended to “reduce downward pricing pressure in the marketplace,” as Judge Hamilton put it in her order.
The plaintiffs contend the scheme “illegally [divided] the markets for sales and online rentals of DVDs in the United States.” Millions of consumers across the country were affected, according to the plaintiffs.
The scheme allegedly began in January 2005, when the companies' respective CEOs met for dinner to ponder ways to reduce competition in the online DVD market.
Wal-Mart settles
Wal-Mart, perhaps sensing that class certification was imminent, agreed to settle the case. Under the preliminary settlement agreement, reached on December 14, the retailer would pay up to $40 million to affected consumers. A fairness hearing will be held on February 9.
“The plaintiffs believe this settlement is fair and reasonable and they are pleased they were able to reach this resolution with Wal-Mart,” Robert Abrams, an attorney for the plaintiffs, told Bloomberg in an e-mailed statement. Abrams said that the plaintiffs “are pleased with Judge Hamilton’s class certification decision, [and] look forward to proceeding with the case against Netflix and resolving it through trial or settlement.”
Netflix spokesman Steve Swasey told Bloomberg that “the case has no merit and we’re going to continue to defend it.” He declined comment on the Wal-Mart settlement.
Class action support
Judge Hamilton wrote in her order that “it has long been recognized that class actions play an important role in the private enforcement of antitrust laws,” and that, “accordingly, when courts are in doubt as to whether [class] certification is warranted, courts tend to favor … certification.”
Addressing the requirement that “questions of law or fact common to the class” predominate, Judge Hamilton quoted another case, writing that “where an antitrust conspiracy has been alleged, courts have consistently held that 'the very nature of a conspiracy antitrust action compels a finding that common questions of law and fact exist.'”
“So here,” Judge Hamilton continued. “As plaintiffs posit, the existence, scope, and efficacy of the alleged conspiracy to allocate and monopolize the online DVD rental market in the United States are common questions that all plaintiffs must address.”
The suit alleges several violations of the Sherman Act, the federal antitrust statute.
