NetFlix 2008 Annual Report Download - page 68

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Litigation
From time to time, in the normal course of its operations, the Company is a party to litigation matters and
claims, including claims relating to employee relations and business practices. Litigation can be expensive and
disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to
predict and we cannot reasonably estimate the likelihood or potential dollar amount of any adverse results. The
Company expenses legal fees as incurred. Listed below are material legal proceedings to which the Company is a
party. An unfavorable outcome of any of these matters could have a material adverse effect on the Company’s
financial position, liquidity or results of operations.
In January and February 2009, a number of purported anti-trust class action suits were filed against the
Company. Wal-Mart Stores, Inc. and Walmart.com USA LLC (collectively, Wal-Mart) were also named as
defendants in these suits. Most of the suits were filed in the United States District Court for the Northern District
of California and other federal district courts around the country. A number of suits were filed in the Superior
Court of the State of California, Santa Clara County. The plaintiffs, who are current or former Netflix customers,
generally allege that Netflix and Wal-Mart entered into an agreement to divide the markets for sales and online
rentals of DVDs in the United States, which resulted in higher Netflix subscription prices. The complaints, which
assert violation of federal and/or state antitrust laws, seek injunctive relief, costs (including attorneys’ fees) and
damages in an unspecified amount. On January 16, 2009, plaintiffs from one of the Northern District of
California actions filed a motion before the Judicial Panel on Multidistrict Litigation to have all cases that have
been filed in federal court coordinated or consolidated for pre-trial purposes in the Northern District of
California. The Company has not responded to the complaints.
On December 26, 2008, Quito Enterprises, LLC filed a complaint for patent infringement against the
Company in the United States District Court for the Southern District of Florida, captioned Quito Enterprises,
LLC v. Netflix, Inc., et. al, Civil Action No. 1:08-cv-23543-AJ. The complaint alleges that the Company
infringed U.S. Patent No. 5,890,152 entitled “Personal Feedback Browser for Obtaining Media Files” issued on
March 30, 1999. The complaint seeks unspecified damages, interest, and seeks to permanently enjoin the
Company from infringing the patent in the future.
On October 24, 2008, Media Queue, LLC filed a complaint for patent infringement against the Company in
the United States District Court for the Eastern District of Oklahoma, captioned Media Queue, LLC v. Netflix,
Inc., et. al , Civil Action No. CIV 08-402-KEW. The complaint alleges that the Company infringed U.S. Patent
No. 7,389,243 entitled “Notification System and Method for Media Queue” issued on June 17, 2008. The
complaint seeks unspecified compensatory and enhanced damages, interest and fees, and seeks to permanently
enjoin the Company from infringing the patent in the future.
On August 27, 2007, plaintiff/relator Norman Baccash, on behalf of the United States, filed suit against the
Company in the United States District Court for the Northern District of Georgia, alleging claims under the False
Claims Act, 31 U.S.C. § 3729 et seq. (the “Act”). The complaint was filed under seal, pursuant to the Act, to
provide the United States an opportunity to intervene and conduct the action on its own. On June 26, 2008, the
United States declined to intervene in the litigation and the complaint was ordered unsealed on July 11, 2008.
The complaint alleges that the Company falsely certified that its DVD mailers qualified as machinable under the
mailing standards of the United States Postal Service, thereby avoiding $260 million in surcharges for
nonmachinable mail. The complaint seeks monetary relief in amount three times the damages suffered by United
States, civil penalties of between $5,500 and $11,000 for each violation of the Act, a monetary award for the
relator pursuant to the Act, injunctive relief and costs. On February 2, 2009, the Company filed a motion to
dismiss the complaint. A hearing date has not been scheduled for the motion to dismiss.
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