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Federal district court dismisses Netflix suit

Netflix subscribers initiated a lawsuit alleging a price agreement between Netflix and Wal-Mart which they claim allowed Netflix to overcharge customers and manipulate subscription pricing between 2005 and 2010. Wal-Mart agreed to settle the suit earlier this year and in a recent email announced that the corporation had set aside $27,250,000 to be distributed to the class and lawyers. Netflix on the other hand continued their battle in court which paid off when U.S. District Court Judge Phyllis J. Hamilton granted Netflix's motion for summary judgment.

Judge Hamilton explained in the opinion that,

Ultimately, the court agrees with Netflix. While the record is disputed with respect to whether Netflix internally viewed Walmart as a strong competitor at various points in time, there is simply no material dispute as to whether Walmart in fact impacted Netflix's pricing decisions and whether, in the face of Walmart's continued competition (i.e., absent the Promotion Agreement), Netflix would have lowered its prices to the $15.99 price point that plaintiffs assert...

Second, and more significantly, the actual facts belie plaintiffs' attempt to catapult Netflix's internal debate over whether to lower its prices in response to Blockbuster's December 2004 $14.99 price decrease into a triable dispute as to whether Netflix would have lowered its price to $15.99 in the face of Walmart's continued competition in the market for online DVD rentals....Since plaintiffs' theory of injury ultimately depends upon proof of what Netflix would have done, rather than what Netflix could have done, the evidence therefore falls far short of the necessary mark.

In short, even viewing the undisputed facts in the light most favorable to plaintiffs, the court concludes that no reasonable juror could believe that Netflix would have lowered its 3U price to $15.99 in response to continued competition from Walmart, whose 3U price was set at $17.49--particularly when those facts demonstrate that Netflix chose not to lower its price in the face of Blockbuster's $14.99 price cut, despite the fact that Blockbuster had a higher market share than Walmart.

Nor can plaintiffs' expert vault plaintiffs over the injury hurdle.

There are numerous theories which may explain why Wal-Mart chose to settle the case instead of seeing the litigation through as Netflix has done.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.