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Long-Standing Distributor Suit With Universal, Ingram and VPD to Go Forward

7 Apr, 2004 By: Holly J. Wagner

Claims by distributors Flash Electronics and East Texas Distributors (ETD) that Universal Studios Home Video and two other distributors conspired to push Flash and ETD out of the opportunity to distribute Universal product are enough to let a federal lawsuit proceed, a judge in New York has ruled.

The decision came in a federal lawsuit that Flash and ETD filed soon after Universal decided in late 2000 to streamline its distribution by giving Ingram and VPD exclusive deals to serve rental accounts and Valley Media, which is not named in the complaint, representation for sellthrough accounts. A year later, ETD got out of video distribution.

In the lawsuit, Flash and ETD accuse Universal Music & Video, Universal Studios Home Video, Ingram Entertainment and VPD of conspiring to push Flash and ETD out of rental distribution of Universal titles.

Ingram, VPD and the Universal defendants sought to have the case thrown out, claiming Flash and ETD would not be able to show that Universal's exclusive distribution agreements pushed video prices up or otherwise hurt consumers or limited competition in the marketplace.

The plaintiffs in the suit claimed that Ingram and VPD allegedly “bribed” retailers with free discs and threatened to interfere with Flash and ETD's distribution of DreamWorks titles as well. Universal distributes DreamWorks home video titles. Losing even one studio's product puts a distributor at a disadvantage because it can no longer be a one-stop for its customers, the plaintiffs contend.

Flash and ETD also allege Universal gave Ingram, VPD and Valley Media favorable terms that were not available to them, then used Flash and ETD customer information to supplant them with the other distributors. Those distributors, Flash and ETD allege, jumped the gun on agreements and told Flash and ETD's accounts they were no longer authorized to sell Universal product.

Judge Raymond J. Dearie said in the ruling obtained by Video Store Magazine that Flash and ETD may proceed on claims that the Universal labels sold their products to Ingram and VPD, which have a combined 75 percent market share, at lower prices than Flash and ETD got, threatening the pricing structure in the marketplace. He also ruled that the plaintiffs may pursue fraud and misrepresentation claims, claims that Ingram and VPD interfered with Flash and ETD's contracts with Universal, and ETD's breach-of-contract claim against Universal, alleging the studio never gave proper notice that it was ending their relationship.

A handful of other allegations, including price-fixing, a group boycott, a claim that Universal interfered with its own contracts with Flash and ETD and that Ingram and VPD interfered with Flash and ETD's client relationships were denied.

In making the ruling, the judge noted he was bound to interpret the issues in the light most favorable to the plaintiffs, at least until they have an opportunity to present facts to support their surviving claims.

In the years since the lawsuit was filed, other studios have tried to follow with changes to their distribution systems. Warner Home Video realigned its distribution system by class of trade. Columbia TriStar Home Entertainment scrapped its Retail Connect program, which also would have tapped Ingram and VPD, last October, before it even got off the ground.

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