California Judge Approves Class-Action Status Against Wal-Mart, Netflix

Published February 14, 2011

A federal judge in California granted class-action status this past December to a group of Netflix subscribers who allege the company and Wal-Mart conspired to monopolize the DVD market.

Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California ruled the plaintiffs are “united by common and overlapping issues of fact and law.” Wal-Mart settled the suit for $40 million, but Netflix vows to continue the legal battle.The subscribers’ suit says the two companies worked together in 2005 to split up the DVD market, with Netflix agreeing not to sell DVDs and Wal-Mart agreeing not to rent them. The suit says the deal coincided with Blockbuster’s move to rent DVDs online.

“The plaintiffs believe this settlement is fair and reasonable and they are pleased they were able to reach this resolution with Wal-Mart,” said Robert Abrams, an attorney for the plaintiffs, in a published statement.

‘Lawyers Extorting Business’

“This suit makes no sense at all,” said Marc Hyman, owner of BBR Consulting in Santa Barbara, California, who left the practice of law 25 years ago partly because of frustration over what he called manufactured class-action lawsuits.”In 2005 Netflix was not selling DVDs and still does not,” Hyman explained. “Their business model has always been rental rather than sales. At the same time Walmart sold DVDs and had no capacity to run a rental business. Walmart has not done well with media. Of all things to accuse companies of, this is not an obvious one. This is just another example to lawyers extorting business when a claim seems possible.”

Many times the same parties participate in several class-action suits, with the lawyers getting the brunt of any settlements, he said. “Class-action lawsuits started out as a good measure, but now it’s a total scam. It has become a conduit for business rather than something for actual misdeeds.”

Hyman added: “Wal-Mart paid because it does not need to deal with this right now and the cost of settling was very small versus overall revenues.”

‘Laughed Out of Court’

According to published reports, a Netflix spokesman said “the case has no merit, and we’re going to continue to defend [ourselves against] it.” He declined comment on the Wal-Mart settlement.

Steve Titch, a telecom and policy analyst for the Los Angeles, California-based Reason Foundation, agreed with the Netflix representative.

“The reason they are being sued is that they both have highly recognizable brand names. More and more financial analysts think that Netflix is going to face an increasing amount of competitors, especially online, from Apple, Hulu, Verizon, and others,” Titch said. “So, many analysts are saying Netflix’ stock is overpriced. The notion that Netflix has anything near a monopoly is ludicrous.”

Titch pointed out online providers, such as cable companies, have access to movies 30 days before Netflix, and consumers prefer to use streaming media rather than purchasing DVDs at a retail outlet like Wal-Mart. “Consumers can also purchase DVDs from numerous other sources,” he said.

“This is one of the more ridiculous class action suits to come down the pike in a long time,” Titch said. “This lawsuit should be laughed right out of court.”

Phil Britt ([email protected]) writes from South Holland, Illinois.