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Walmart Settlement on Netflix Antitrust Upheld

SAN FRANCISCO (CN) - The 9th Circuit on Friday upheld Walmart's offer to settle an antitrust class action by paying Netflix DVD subscribers $27.2 million.

The original suit, filed in 2009 by lead plaintiff Andrea Resnick, claimed that Walmart and Netflix cooperatively violated the Sherman Act in a 2005 deal in which Walmart transferred all of its online DVD-rental subscribers to Netflix.

Walmart took a 10 percent revenue share for the transfers, while Netflix agreed to promote Walmart's DVD sales, the class alleged.

Netflix struck the deal to expand its primary business, a DVD-rental mail service, into the online-streaming arena.

The subscribers alleged that the deal subjected them to supracompetitive subscription prices. Had Walmart remained in the online DVD-rental market, they claimed, Netflix would have reduced its prices to stay competitive.

In the 39-page appellate opinion, the three-judge panel said that the trial court properly ruled for Netflix on this claim because, when Walmart first entered the market, Netflix did not lower its prices - it actually increased them.

Netflix also did not lower its prices in response to a price cut by Blockbuster, which at the time had a greater share of the market than Walmart did, the court found, adding that Netflix never viewed Walmart as a true competitor.

Six class members had who found the settlement unfair had appealed the case. They took particular issue with the cut awarded to the nine class representatives.

The 43-page opinion on the settlement defines the class as "any person or entity residing in the United States or Puerto Rico that paid a subscription fee to rent DVDs online from Netflix on or after May 19, 2005, up to and including the date the court grants preliminary approval of the settlement, or some other date to be agreed by the parties to this agreement."

The $27.2 million settlement consisted of a cash component and a gift card component, and it required class members to claim their awards.

According to the opinion, the cash component funded attorneys' fees and expenses, administrative costs and incentive payments to class representatives. The gift card component provided class members with a freely transferrable gift card to the Walmart website, or its cash equivalent.

Divided among the 1.2 million claimants, the gift card component came out to $12 per person.

The six objecting class members argued that, among other complaints, the nine class representatives' awards of $5,000 each were "unreasonably large" as compared with the awards for the rest of the class members.

But the appellate panel said that the comparative awards were reasonable because the totality of the class representatives' awards constituted only 0.17 percent of the total settlement fund.

The panel also dismissed the objectors' complaints that the settlement violated their rights to due process, since the terms of the settlement were clearly stated in the notices emailed to class members. The objectors also failed to support claims that the award's gift card component constituted a "coupon settlement," since the court found that gift cards have more flexibility and purchasing power than coupons have.

In a separate opinion, the same appellate panel also upheld the finding that the plaintiff Netflix subscribers did not present a triable issue of fact.

The ruling also shaves the $710,000 in costs awarded to Netflix for its discovery-related tasks in the case, a figure both the class and Neflix had contested.

In reversing slightly, the court sided with the subscribers on the fact that the costs of optical character recognition, TIFF conversions and "endorsing" activities were non-taxable.

Netflix failed to show however that it deserved $21,000 for the production of black-and-white PowerPoint documents before the subscribers requested ones in color, the court found.

Chief Judge Sidney Thomas wrote both opinions for the court.

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