On Feb. 27, 2015, in In re Online DVD-Rental Antitrust Litig., 779 F.3d 914 (9th Cir. 2015), the U.S. Court of Appeals for the 9th Circuit affirmed a summary judgment for Netflix in an action alleging that Netflix conspired with Walmart to monopolize the online DVD rental market. The court found that the class of consumer plaintiffs had failed to establish antitrust injury.
Netflix—which now offers a digital video streaming service—began by selling and renting DVDs to subscribers through the mail. Netflix eventually achieved a large market share of the online DVD rental market which grew over the years (77% in 2005 to more than 90% in 2010). In 2003, Walmart launched its own online DVD rental service. However, Walmart never had more than 60,000 subscribers. In contrast, in mid-2004 Netflix had over two million subscribers. By the end of 2004, Walmart was losing subscribers.
Netflix and Walmart had several discussions about the online DVD rental business. Walmart considered various options, but by early January 2005, decided to exit the market. In the spring of 2005, Walmart entered into an agreement with Netflix that transferred its subscribers to Netflix in return for certain consideration. Netflix also agreed to promote Walmart's DVD sales business. The agreement contained no covenant not to compete, did not prohibit Netflix from selling new DVDs, and expressly permitted Walmart to offer an online DVD rental service. (In 2010, Walmart acquired a streaming video service that competes directly with Netflix.)
The plaintiffs alleged that the Netflix-Walmart agreement was an unlawful allocation of the online-DVD rental market that resulted in supra-competitive pricing for online DVD rentals. The 9th Circuit agreed with the district court that the undisputed record belied this assertion. In the court's view, no reasonable juror could conclude that Netflix was going to lower its price in response to Walmart when (1) Netflix had never lowered its prices in response to Walmart at any time and (2 Netflix did not lower its price in favor of a price cut by Blockbuster, which was objectively a greater competitive threat. The court found that various internal documents about Walmart's business plans cited by plaintiffs did not contain "any hard market data" and were "best described as puffery." The 9th Circuit also agreed with the district court that plaintiffs' experts' testimony was contrary to the undisputed market facts and was insufficient to defeat summary judgment.
The 9th Circuit's decision is available here.
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