Blockbuster Clients Out of Netflix-Walmart Suit

(CN) - A federal judge in Oakland, Calif., dismissed two class actions - extracting them from an ongoing multidistrict litigation - filed by former Blockbuster subscribers who claim Netflix and Wal-Mart conspired to monopolize DVD rental service.

U.S. District Judge Phyllis J. Hamilton said the Blockbuster subscribers failed to prove that they paid inflated rates to rent DVDs because of marketing agreement between Netflix and Wal-Mart. Blockbuster is not a part to the complaint.

The actions are part of a larger multidistrict litigation in which consumers say Netflix and Wal-Mart entered into a May 2005 marketing agreement to create a monopoly and unlawfully restrain the trade in the market for online DVD rentals.

As a result of the agreement, the plaintiffs generally claim that Wal-Mart exited the market and that Netflix was then able to entrench and enhance its dominant market position in the online DVD-rental market, ultimately raising its prices.

Where the tossed cases differ from those that remain is that the Blockbuster subscribers claim these actions ultimately led them to pay "supracompetitive" prices for online movies.

In December 2009, the first case filed by the plaintiffs was dismissed on the grounds that they lacked antitrust standing. However, the plaintiffs' attorneys immediately asked for reconsideration and later filed an amended complaint advancing new allegations including the theory of "casual injury".

In the new case, U.S. District Judge Phyllis J. Hamilton agreed with Netflix and Wal-Mart, which argued that the plaintiffs failed to meet their burden and demonstrate that Netflix and Wal-Mart's alleged anticompetitive behavior caused Blockbuster to overcharge them.

To rule in the plaintiffs' favor, Hamilton said she would have to believe they proved a "chain of causation" between Blockbuster's price increases and the prices set by Netflix.

Ultimately, however, the chain was threadbare.

"As defendant points out, plaintiffs' theory of a causal link - i.e. that Netflix pricing, by virtue of Netflix's status as the dominant player in the online DVD rental market, constituted a 'maximum' ceiling that dictated Blockbuster's pricing - is simply too attenuated to b considered sufficiently direct," she wrote.

"More fundamentally, plaintiffs here have failed to point to any true independent market 'constraint' or 'mechanism' that, as a matter of economic principle, would predictably dictate the setting of blockbuster's prices, as a form or function of Netflix's prices," Hamilton continued.

Finally, she said, the plaintiffs had not "truly disputed the numerous independent factors aside from the purportedly unlawful agreement in questions or... including the temporary and unsustainable nature of the $14.99 price set by Blockbuster in late 2004 and the influence of Blockbusters' finances, debt covenants and service levels on Blockbuster's decision to eventually raise prices."

In December 2010, Hamilton granted class certification to Netflix subscribers in the case.

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