Nov. 17, 2011 at 3:29 PM ET
Netflix subscribers are being offered a $27 million payment by Wal-Mart to settle a class action lawsuit that alleges the two retail giants violated federal antitrust laws by agreeing to stop competing with each other in 2005.
At the time, Wal-Mart agreed to get out of the DVD-by-mail rental business and, in exchange, Netflix agreed to stop selling discs and promote Wal-Mart’s DVD sales. A press release about the arrangement from 2005 says Wal-Mart rental customers were offered a chance to transfer their memberships to Netflix for one year at the lower Wal-Mart price.
The settlement was revealed in an email sent to Netflix subscribers on Wednesday, and covers anyone who paid fees to Netflix between May 2005 and September 2011. Wal-Mart has not admitted wrongdoing.
But consumers, who claim they've already been wronged because DVD rental prices remained artificially high from the arrangement, won't benefit much from the settlement. After $7 million for attorney's fees, and an additional $2 million for expenses, are paid, less than $1 each will remain for the 25 million current and former subscribers covered in the class.
Consumers have until Feb. 14 to opt out of the settlement. Those who remain in the class will receive their payouts via gift card.
That doesn't sit well with Netflix subscriber Christopher Ambler.
"The lawyers get double-digit millions of dollars and the consumers get a few bucks on a gift card," he said. "All this does is raise prices for consumers to pay for the lawyers getting a big bonus."
As is often the case in what are sometimes called "coupon" class action settlements, Wal-Mart could actually benefit from the settlement payout. The small gift cards it would send to consumers would entice them to visit Wal-Mart stores,similar to a marketing campaign.
A judge must still approve the Wal-Mart settlement; the final hearing is slated for March 14 in a federal court in Oakland, Calif.
Netflix, also named in the lawsuit, is taking a different legal strategy, with lawyers so far signaling they plan to allow the lawsuit to go to trial, scheduled Jan. 23 in a federal court in California. Netflix's lawyers have argued that the Federal Trade Commission found nothing wrong with the agreement it made with Wal-Mart.
More details on the lawsuit are available at www.OnlineDVDclass.com
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