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Did Wal-Mart (NYSE: WMT) and Netflix (NSDQ: NFLX) illegally divide up the DVD market back in 2005? Wal-Mart has denied the allegations, but the retail giant is now set to cut a check-for anywhere from $29 million to $40 million-to make them go away.
The settlement Wal-Mart has agreed to is outlined in papers that were filed with the Oakland federal court that is hearing the class-action lawsuit. Wal-Mart will give either cash or a Walmart.com gift card to every “class member” who asks for one, and will spend no less than $29 million and no more than $40 million. The class-which has now been certified by the judge overseeing the case-includes everyone who has paid for a Netflix subscription since 2005. The exact size of the class still hasn’t been determined, but Netflix today has more than 16 million members in the U.S. and Canada. The settlement applies only in the U.S.
The judge overseeing the case still has to approve the settlement, which is a normal step in class-action lawsuits. Wal-Mart first agreed to settle the case back in August but didn’t disclose the cost of the settlement or any details.
For its part, Netflix is going to fight on. Contacted for this story, a Netflix spokesman said the company “believes the lawsuit lacks merit and we will defend it.”
The plaintiffs have passed an important hurdle by getting class certification from the Oakland federal judge. The certification of such an enormous class isn’t good news for Netflix, because it increases the potential damages it could have to pay out if it loses. In class-action suits, defendants often try to prevent the certification of a class, because class-actions can be more difficult and expensive to defend than complaints filed by individual plaintiffs. The order certifying the class doesn’t suggest anything about the actual merits of the suit, however.
The lawsuit stems from an agreement between Wal-Mart and Netflix in 2005. Wal-Mart agreed to get out of the business of renting DVDs online, even though it was doing well in that increasingly competitive market, while Netflix agreed it wouldn’t go into physical DVD sales, a core area for Wal-Mart. The pact came about shortly after Blockbuster (NYSE: BBI) got into the online rental business. The pact, which included a provision that called for the two companies to help market each others’ services, was reportedly widely in the press; Netflix had a 4 percent bump in its stock price the day the agreement was announced. The plaintiffs’ lawyers in the class-action case argue that the agreement by the two companies to help each other violated antitrust laws.