Warner Suit Alleges Massive DVD Destruction Fraud30 Jul, 2009 By: Chris Tribbey
More than 2 million Warner Home Video DVDs and Blu-ray Discs slated for destruction were instead kept by the company charged with destroying them, and then sold at retail for bargain prices, according to a suit filed by the studio.
Warner alleges in the suit, filed July 28 in Los Angeles Superior Court, that Agoura Hills, Calif.-based IWMB, Inc. was contracted to destroy excess inventory, however IWMB allegedly sold the product “to one or more third parties, with the knowledge that those third parties would subsequently resell the product at a price lower than prevailing wholesale and retail prices,” undercutting sales by distributors and retailers.
“The company IWMB was hired to destroy and recycle excess or damaged DVDs. Instead, we believe and allege in the complaint, that they illegally sold these discs to third parties at a price substantially lower than the prevailing prices of legitimate wholesalers and retailers who are authorized to sell the same product," the studio said in a statement. "These unauthorized sales have undermined and diluted the value of our home video titles, and have cost us an estimated $10 million or more in lost revenues. We are seeking both compensatory and punitive damages, as well as an injunction to stop IWMB from selling any more of our product.”
The complaint alleges fraud, breach of contract, and violation of California’s Unfair Competition Law, and seeks an immediate injunction and damages in excess of $10 million.
IWMB president Cal Jones is named in the suit as well. A message left for Jones seeking comment was not immediately returned.
Warner says the alleged scheme cost it more than $10 million, when DVDs and Blu-rays returned by retailers and distributors were sold instead of destroyed, and is seeking compensatory and punitive damages, “in an amount sufficient to punish and make an example of them.”
The suit claims that replicator Cinram subcontracted IWMB to destroy the excess Warner product, and IWMB in turn issued certificates of destruction to Cinram. But Warner found the product that was supposed to be destroyed was “advertised and sold … nationally in large quantities.”
“These illegal sales were the fruits of defendants’ theft of the Warner product, and thus were wholly unauthorized and unlawful,” the suit reads. Warner believes at least 750,000 of the units have been sold so far, and another 250,000 are still being held by one or more third-party sellers. The suit does not name any of the alleged third-party sellers. The Los Angeles lawyer representing Warner was not immediately available for comment.
“[Warner] has already suffered irreparable damage including, without limitation, damage to the value of its home entertainment properties, its relationships with its business partners and to its reputation as a provider of valuable home entertainment,” the suit reads.
Warner is demanding a jury trial.