In Re Online DVD-Rental Antitrust Litig.

In order to establish that an online DVD-rental service has engaged in a merger that violates the Sherman Act, an antitrust injury-in-fact must be demonstrated.

Netflix, Inc. ("Netflix") formed in 1998 as a subscription DVD-rental service. Netflix has controlled over 70% of the online DVD-rental market since the company began operations. In 2003, Wal-Mart Stores, Inc. (“Wal-Mart”) started its own online subscription DVD-rental service, which also allowed its subscribers to buy DVDs. Wal-Mart at its peak had less than 60,000 subscribers, while Netflix at the same time had over 2 million subscribers. Wal-Mart decided to end the rental service and transferred its subscribers to Netflix in an agreement between the companies in 2005. Subscribers of Wal-Mart’s service (“Subscribers”) brought suit against Wal-Mart and Netflix for four separate violations of the Sherman Act, alleging that the merger served to monopolize the online DVD-rental market. Wal-Mart settled with Subscribers, and Netflix filed a motion to dismiss. The district court granted summary judgment in favor of Netflix, ordering the Subscribers to pay costs to Netflix of over $700,000 under a broad interpretation of 28 U.S.C. § 1920(4). The Ninth Circuit affirmed the grant of summary judgment because the Subscribers had not established an antitrust injury-in-fact. The Netflix price for its rental service was independent of the price Wal-Mart charged when Wal-Mart entered the market, and the price for Netflix was unaffected when Wal-Mart left the market. The panel reviewed each of the awarded costs and determined that under a more narrow reading of §1920, in consideration of Taniguchi v. Kan Pac. Saipan, Ltd., Netflix may only recover costs for “optical character recognition, converting documents to TIFF, and “endorsing” activities. The panel did not allow recovery for “data upload” and “keywording.” AFFIRMED In Part; VACATED in Part; AND REMANDED.