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Netflix Antitrust Lawsuit Dismissed By Federal Judge

11/25/2011 10:16 AM ET

Netflix Antitrust - Netflix achieves victory on antitrust lawsuit. A federal judge in California dismissed the case that alleged the online movie retailer had struck an illegal ”market allocation” agreement with Walmart. The plaintiffs couldn’t show any collusive agreement and the dismissal cuts short a trial that was tentatively scheduled for January.

The plaintiffs brought their claims to federal court in 2009, pointing to an agreement made between Netflix and Walmart four years earlier.

At the time, Blockbuster had just entered the DVD online rental market and rumors circulated that Amazon would soon do the same. Netflix approached Walmart in a purported effort to stave off the perceived Amazon threat. At first, the talks went nowhere, but then Walmart decided to exit the DVD rental business.

In 2005, the two companies reached a deal on a so-called “Promotion Agreement,” whereby existing Walmart DVD rental customers would be transitioned to Netflix.

Amazon didn’t jump into the DVD business, and Blockbuster later flopped, leading eight individuals to lead a class action lawsuit that alleged that antitrust behavior between Netflix and Walmart had led to higher prices.

The plaintiffs estimated that damages could be as high as $654 million.

But now, Judge Hamilton has curtailed a trial that was scheduled to feature Netflix CEO Reed Hastings as well as former top media executives from Amazon, Walmart and Blockbuster. She ruled that the plaintiffs simply couldn’t show that the “Promotion Agreement” was illegal.

The class plaintiffs are free to appeal the decision, but in the meantime, they won’t walk away empty-handed.

Netflix earns the victory, but Walmart made an independent decision about a year ago to settle instead of spending money on lawyers. In retrospect, given the judge’s decision yesterday, Walmart seems to have made a $27.25 million error. That’s the amount that Walmart agreed to pay out in order to avoid this class action fight.

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