In 2010, Netflix was on the precipice of a major popularity explosion. It was shifting from a DVD-via-mail company to an online streaming company. This would prove to be one of the most critical decisions the company would make in its brief existence, catapulting it to a new stratosphere of success as a media giant.
But during this time, Netflix was contractually partnered with Relativity Media. This was the first big Hollywood studio that got on board with Netflix’s vision. However, soon thereafter Relativity Media ran into financial hardship and declared Chapter 11 bankruptcy. When this bankruptcy was filed, Relativity alleges in their lawsuit against Netflix, the streaming company went out of its way to circumvent the licensing they had together.
Relativity claimed that Netflix acted in bad faith, and that Netflix’s actions led to tremendous financial hardship on the company. Relativity’s lawsuit against Netflix moved ahead recently, but it was trimmed down from its original version — which formerly included claims of fair trade violations and trade libel.
Business bankruptcy is a critical part of a company’s life cycle. Obviously it isn’t the goal of any company to encounter such financial hardship — but if they do, bankruptcy is a great legal tool that can help them formulate an exit strategy, reorganize their business or restructure their debt to get their feet back under them (so to speak). Bankruptcy doesn’t have to be the end. It can actually be a beginning.
Source: The Hollywood Reporter, “Judge Trims Relativity’s $1.5 Billion Lawsuit Against Netflix,” Eriq Gardner, Feb. 27, 2017