Netflix, Amazon Beat Blacklisting Lawsuit From Former Employee

Ted Sarandos, Netflix CCO
Miller Mobley

The biggest rule Ted Sarandos and Netflix keep breaking is their decision to release all episodes of each series at once, enabling “binge” viewing, a very consumer-centric approach. Television series always have released new episodes on a weekly basis, with serialized dramas typically ending each week with a dramatic cliff-hanger to build anticipation between episodes.

Netflix and Amazon are competitors in providing online video content, but they're sharing a victory in court.

In a ruling Friday, Los Angeles Superior Court judge Michael Stern shot down the claims brought against the online giants by Jerry Kowal, a former employee of both companies who alleged in an April complaint that he had been wrongfully terminated by Amazon after Netflix waged a blacklisting campaign against him.

Kowal claimed that when he was hired at Netflix as a director of content acquisition, he developed an "exceptional" reputation there, but began to notice a "cold and hostile," "cutthroat, winner-takes-all" atmosphere within the company. (In particular, he alleged that at one of the company's Quarterly Business Review meetings, chief content officer Ted Sarandos made derogatory remarks about a former superior of Kowal's in front of more than 200 Netflix employees.) He became dissatisfied with the company's "toxic culture," he said, and decided to take a job at Amazon.

Shortly after he started, he claims, Netflix's lawyers sent a letter to Amazon accusing him of unfair competition and demanding to search his personal email accounts and computer for Netflix's business information. He conceded that Netflix information might remain on his devices, but "emphatically" denied using it illicitly, and Amazon instructed him to meet with Davis Wright Tremaine's Harry Korrell to handle the allegations, he said.

"Neither Korrell nor Amazon made any statement that suggested or implied that Amazon had any policy mandating termination of employment in the event a former employer makes such accusations against a current employee," his complaint reads. 

Nevertheless, he was fired after little more than a month at Amazon. His termination came about because Netflix and Amazon are closer than competitors, he claimed — his complaint notes that Netflix shells out hundreds of millions annually to use Amazon Web Services' cloud computing/storage platform service, and he alleged "Netflix asked Amazon to terminate Kowal's employment...and Amazon acquiesced because Netflix was a valued Amazon customer."

In the meantime, he alleged, Sarandos and Netflix founder and CEO Reed Hastings "vilified" him in front of employees and Board of Directors members at a Quarterly Review Board meeting, stating he would "never work in this industry again." Netflix employees then described him as a "traitor" and "thief" in the media and entertainment industry, he claimed.

His complaint, in which he demanded "no less than $1,000,000" in damages, included claims of civil conspiracy against all defendants and defamation, employee relationship interference and blacklisting against Netflix, Sarandos and Hastings.

In May, Amazon filed a demurrer motion against the civil conspiracy and wrongful termination claims. Then, weeks later, the Netflix defendants filed a motion to strike the claims against them.

The judge's ruling granted both of the motions. In Amazon's case, Stern found that the civil conspiracy claim fails because there is insufficient connection between Amazon and any possible wrongdoing of Netflix's. "There is no independent tort of 'conspiracy.' The only significance of such allegations is to impose or assign joint an actor who did not participate in the act itself, but had knowledge of it," the judge wrote, but there's no such tie between Netflix and Amazon. That left only the wrongful termination claim. But if Amazon wrongfully fired Kowal as he alleges, "It cannot conspire with itself in so doing," the judge points out.

The wrongful termination claim was filed with reference to California Business & Professions Codes 16600 and 16700, which Kowal cited as public policy in favor of "open competition and employee mobility." But those concepts' use in a recent case (Silguero v. Creteguard, Inc. in 2010) concerned non-compete agreements, which didn't figure into Kowal's firing. "To the contrary, the termination is claimed to be as part of unsubstantiated, nebulous, and unsupported conspiracy theory," the judge wrote, finding that no public policy covers the circumstances under which Kowal was fired. 

As for Netflix, the judge's ruling came down to California's anti-SLAPP statute. In the special motion to strike, Netflix argued that all of its statements against Kowal constituted speech about an impending litigation, a form of speech that is broadly defined and protected by SLAPP.

The burden therefore fell to Kowal to prove a likelihood of prevailing on the merits of his claims. The judge found he couldn't meet that standard because several of his claims are premised on speech that also is protected by California Civil Code 47(b), which, like SLAPP, covers speech " the initiation or course of any other proceeding authorized by law" — in this case, the letter Netflix sent to Amazon alleging unfair competition by Kowal.

Twitter: @Asiegemundbroka