SAN FRANCISCO (CN) – A federal antitrust class action accuses Wal-Mart and Netflix of conspiring to monopolize the sale and rental of DVDs. Consumers claims Walmart.com agreed to stop competing with Netflix in the online DVD rental business, and Netflix agreed to promote sale of new DVDs at Wal-Marts, and agreed not to sell new DVDs in competition with it.
Plaintiffs claim the conspiracy began in January 2005, when Netflix CEO Reed Hastings and Walmart.com CEO John Fleming “met with each other for dinner to discuss the online DVD rental and DVD sales markets and how they could reach an agreement that would reduce or eliminate competition in those markets.”
Until that time, the complaint states, the defendants competed for DVD sales and rentals. “However, by no later than May 19, 2005, Netflix, Wal-Mart Stores, and Walmart.com entered into an agreement by which Walmart.com would stop competing with Netflix in the online DVD rental business and Netflix would promote the sales of new DVDs by Wal-Mart stores and Walmart. Com, and not sell new DVDs in competition with them.
“Wal-Mart stores actively participated in this conspiracy. This is confirmed by, among other things, the fact that prior to the announcement of the Market Division Agreement, John Fleming was promoted to Chief Marketing Officer of Wal-Mart Stores.”
This illegal restraint of trade “enabled Netflix to charge its customers higher subscription prices for the rental of DVDs than it otherwise would have,” the complaint states.
Plaintiffs’ lead counsel is Paul Alexander with Howrey LLP of East Palo Alto.