Netflix Facing Class Action Lawsuit for Alleged Antitrust Violation with Walmart

No surprise, but Netflix is facing another class action lawsuit. This lawsuit is not due to anything you might have assumed, however. Rather than Netflix being sued over the company's wide array of suspicious business practices, Netflix is being sued for something the company allegedly did in 2005.

If you will think back to that time, Walmart was in the DVD-by-mail business. Walmart shuttered its video rental business and effectively surrendered its subscribers to Netflix. Netflix.com promoted Walmart for DVD sales. Walmart.com promoted Netflix for DVD rentals. It seemed like a wonderful marriage.

The plaintiffs are alleging that Netflix's CEO, Reed Hastings, met with the CEO of Walmart during that period, John Fleming, and conspired to strategically divide the home video market. According to the alleged agreement, Netflix would not sell DVDs (presumably new DVDs) if Walmart would agree to stop renting DVDs. That way, Walmart could secure a larger share of video sales and Netflix could secure a larger share of video rentals. Most importantly, the companies would not have to compete against each other and drive down each other's profits in price wars.

From a business point-of-view, this sort of arrangement makes perfect sense. Why fight your competitor in price wars over two different markets, when you can simply call a truce with your competitor that will allow each of you to have great control over an individual market? After all, as a business leader, which would you rather have: two highly competitive markets with low profit margins or one monopolized market with a high profit margin? If you do not have to compete as much, you can charge higher prices. Higher prices may hurt consumers, but higher prices normally translate to higher profits when proper competition does not exist in any given market.

The most important thing to consider about this alleged conspiracy is that it is most likely illegal under antitrust laws. These antitrust laws are in place to protect you, the consumer, from price fixing, collusion, and other similar predatory business practices. Walmart certainly did not want to be in a big trial over this. Walmart has already settled for an amount that may be $29 to $40 million. At some point, those included in the class action lawsuit will probably receive checks or Walmart gift cards as part of the settlement.

It is unclear what Netflix is going to do about this. Netflix is potentially just as guilty as Walmart in this alleged conspiracy. Netflix, however, may have much more at stake in this controversy. DVD sales makes up only a small fraction of Walmart's profits. If Walmart lost a lawsuit over inflated DVD sale prices, it would mean a hit against just one of its many businesses.

With Netflix, however, this is a different story. Netflix largely exists on video rentals. Videos are not just one business for Netflix, videos are Netflix's business. If the plaintiffs can prove Netflix has been able to charge inflated prices ever since the alleged Walmart agreement in 2005, the penalties could be tremendous. U.S. District Judge Phyllis Hamilton in Oakland, CA has stated, "As a result, millions of Netflix subscribers allegedly paid supracompetitive prices."

Think about the millions and millions of subscribers who have paid monthly subscription fees to Netflix since 2005. If Judge Hamilton or some other judge were to determine those subscription fees were inflated by just 10% as a result of an illegal pact with Walmart, the amounts could be staggering. The penalties could be crippling.

The federal trial is currently set for January 2012. Certainly, Netflix lawyers and managers are carefully debating their options. Netflix must tread carefully on this issue. Given this lawsuit could potentially involve every Netflix subscriber since 2005, even the slightest misstep could lead to a nasty stumble for Netflix.

Netflix Is Outing You, Gay Communist Serial Killer

Wired is running an article by Ryan Singel about a privacy breech at Netflix and the resulting lawsuit: Doe v. Netflix. At issue is Netflix's intentional release of supposedly anonymous subscriber data to the public for a movie recommendations improvement contest. Concerned parties, however, are worried the data could be easily used to identify specific people by cross-referencing the data with other sources.

The primary concern is one's movie-watching habits and preferences could provide tremendously strong hints about one's sexual interests, religious beliefs, political affiliations, etc. For example, if you have rented Brokeback Mountain, Milk, and The Adventures of Priscilla, Queen of the Desert from Netflix, this data could potentially be used to indicate you have homosexual interests (whether you do or not). Perhaps you rented Lolita, The Lover, and Pretty Baby from Netflix. A nosey person might conclude you have an interest in underage girls. Maybe you rented movies about Ted Bundy, John Wayne Gacy, David Berkowitz, etc. from Netflix. You might be identified as a person obsessed with serial killers. Perhaps you rented movies about Che Guevara, Chairman Mao, and Joseph Stalin from Netflix. You could be viewed as a person with Communist sympathies. The examples could go on and on.

Your movie-watching habits and preferences say a lot about you. What they say could be inaccurate, but they do say things. In the hands of a malicious person, your viewing data can be used to reveal all sorts of information about you. Whether these revelations are true or not, the information could be used to embarrass, harass, persecute, or investigate you.

If you are concerned that Netflix has compromised your privacy by releasing your personal movie-watching habits and preferences, consider contacting an attorney. At the very least, contact Netflix to find out what they are doing with your personal information. Make sure Netflix responds to you in writing. It is your information. You have a right to know. You have a right to hold Netflix accountable for this careless behavior.

Reporting Netflix Class Action Lawsuit Settlement Violations

If you are exercising your Netflix class action lawsuit settlement benefits and notice any potential violations of the settlement terms or anything unusual, you may wish to contact the Superior Court of California, County of San Francisco (www.sfgov.org/site/courts_index.asp) in regard to the Frank Chavez vs. Netflix case (Case Number: CGC-04-434884). Judge Thomas Mellon was involved in the settlement.

The attorneys for Frank Chavez are Adam Gutride and Seth Safier of Gutride Safier LLP (www.gutridesafier.com).

Click here to read about your settlement benefits.

Click here to read the Frank Chavez vs. Netflix settlement agreement.