Disney, DreamWorks, and Other Hollywood Studios Named in Antitrust Class Action Over Alleged "No Raid" Scheme

disneyThe Walt Disney Company and Walt Disney Animation Studios have had a (snow)-monstrous year with the smashing success of Frozen and the Marvel-character films. Most parents are well aware of this fact, as they have had Idina Menzel's version of the song "Let It Go" (from Frozen) stuck in their heads for months. And, even in the peak of Summer, most kids (including mine) have been singing "Do You Want to Build a Snowman?" (another hit song from Frozen) through every closed door in the house. Shareholders are singing the same tune, as Walt Disney Company's stock reached an all-time high of $90 per share.

But, will Disney's recent success soon be overshadowed by a recently-filed antitrust class action? And, what is the role of in-house counsel or outside legal counsel, like FI&C, to help companies, such as Disney, prevent antitrust actions? In September 2014, Plaintiff Robert A. Nitsch, Jr. filed a putative antitrust class action against The Walt Disney Company, Walt Disney Animation Studios, DreamWorks Animation SKG, Inc., Pixar, Lucasfilm Ltd., LLC, Digital Domain 3.0, Inc., ImageMovers, LLC, ImageMovers Digital, Sony Pictures Animation, Inc. and Sony Pictures Imageworks, Inc. Plaintiffs are represented by the class action firm Cohen Milstein Sellers & Toll PLLC.

The 27-page Complaint alleges that these "[v]isual effects and animation companies have conspired to systematically suppress the wages and salaries of those who they claim to prize as their greatest assets – their own workers." Complaint, ¶ 1. The Complaint claims that these companies had "no raid" agreements with one another, which were allegedly created and enforced by some of the highest-level executives of the defendants, including the late Steve Jobs (then-CEO of Pixar and founder of Apple), Ed Catmull (President of Pixar), George Lucas (founder of Lucasfilm and its division Industrial Light & Magic), Jeffrey Katzenberg (CEO of DreamWorks Animation), and Dick Cook (Chairman of Walt Disney Studios). Complaint, ¶ 2-4.

The Complaint describes a number of alleged communications among the defendants, including one in which Mr. Catmull purportedly explained to Mr. Cook: "[w]e have avoided wars up here in Norther[n] California because all of the companies up here – Pixar, ILM, Dreamworks, and couple of smaller placed [sic] – have conscientiously avoided raiding each other." Complaint, ¶ 6. The Complaint also describes an email of November 17, 2006 from Pixar's Vice President of Human Resources, Lori McAdams, that was sent to senior human resources personnel at DreamWorks, Sony Pictures Imageworks, Lucasfilm, Walt Disney Animation Studios and others: "Quick question from me, for those of you who can share the info. What is your salary increase budget for FY '07? Ours is [REDACTED] but we may manage it closer to [REDACTED] on average. Are you doing anything close, more, or less?" Complaint, ¶ 65.

The Complaint states that the Antitrust Division of the U.S. Department of Justice has investigated Pixar and Lucasfilm's "non-solicitation agreement" and found it to be "facially anticompetitive" and in violation of the Sherman Act. Complaint, ¶ 14. The Complaint includes separate causes of action for alleged restraint of trade in violation of the Sherman Act (15 U.S.C. § 1) and the Cartwright Act (California Business and Professions Code § 16720), and for unfair competition and unfair practices (California Business and Professions Code § 17200 et seq.). The plaintiffs seek class certification, compensatory damages, interest, treble damages, injunctive relief, attorneys' fees, and disgorgement or restitution.

The exposure to the defendants in the Disney class action could be substantial, based in part on recent events in a similar "no raid" class action in the same judicial district. In August 2014, Judge Lucy Koh rejected as insufficient a class settlement valued at $324.5 million among Defendants Apple Inc., Google Inc., Intel Corporation, and Adobe Systems Inc. in In re: High-Tech Employee Antitrust Litigation (U.S. District Court, Northern District of California, Case No. 11-cv-2509). The Apple antitrust class action also included as defendants Pixar, Lucasfilm, and Intuit Inc., which settled for $20 million.

The Disney antitrust class action, similar to the Apple and Google antitrust litigation, underscore the importance of companies' involving legal counsel early to ensure compliance with federal and state antitrust laws and laws governing unfair competition. In-house and outside counsel should be involved in any agreements among competitors, agreements between manufacturers and distributors, mergers and acquisitions, and pricing decisions (particularly below-cost pricing). Not only has FI&C has defended companies for decades in antitrust litigation, but FI&C also has extensive experience in counseling client on compliance issues to minimize the risks of and exposure in antitrust litigation.

About The Author

Stephen Weigand | Faruki Partner