Antitrust Class Seeks Standing in|Netflix-WalMart Conspiracy Claim

SAN FRANCISCO (CN) - A federal judge heard arguments Wednesday on Netflix and WalMart's request to dismiss an antitrust class action that claims they conspired to charge higher prices for Netflix's online DVD rental service, which led Blockbuster to raise its prices too. "The real question is whether you can prove that Blockbuster's response was connected to this alleged conspiracy," U.S. District Judge Phyllis Hamilton told class attorney Robert Abrams.

Judge Hamilton said she was more concerned about the directness of the class's alleged injury, since she agreed that customers had been hurt by the higher prices.

The class claims that before WalMart and Netflix colluded, they had been in a three-way price war with Blockbuster.

Abrams said that sometime in January 2005, Netflix CEO Reed Hastings invited Wal-Mart.com CEO John Fleming to dinner, where they discussed their companies' DVD sales and rental businesses.

"Our allegation is that this was when they began the conspiracy," Abrams said.

Abrams claimed the companies agreed that Netflix would eschew DVD sales if WalMart would stay away from online DVD rentals. He pointed out that neither company dropped their prices after that meeting and that in June 2005, WalMart dropped out of the online DVD rental market entirely.

In May 2005, Blockbuster announced that it would begin "testing" a price increase from $14.99 to $17.99 for a three-movie plan, which eventually became permanent. "This conspiracy is the material cause of Blockbuster's prices going up," Abrams said. "Wal-Mart dropping out is what allowed them to do it. They were a key competitor. Get them out and you're left with a market of only Netflix and Blockbuster."

But defendants' attorney Jonathan Jacobson claims the class does not have standing because they were only indirectly injured by what he called "a promotion agreement" between the companies. That agreement allowed WalMart DVD rental customers to switch to Netflix at the same subscription cost.

"The plaintiffs' series of facts is plainly speculative and wrong," Jacobson said.

Judge Hamilton said that whether the class has standing "is a tough question, just like with all these other antitrust cases you all keep bringing me. I'll have to wade through the case and figure out which direction it should go."

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