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FTC Opposes Netflix Settlement

13 Jan, 2006 By: Holly J. Wagner

The Federal Trade Commission (FTC) is opposing a settlement proposed in a class action lawsuit subscribers brought against Netflix, contending the settlement does more to benefit Netflix than consumers.

The company announced last year it expected to shell out $3 million to $4 million to settle the Frank Chavez v. Netflix consumer class action lawsuit, which alleged false advertising, unfair and deceptive trade practices and breach of contract regarding DVD delivery times.

The company also changed its terms and conditions to disclose some of the practices Chavez alleged were deceptive.

Netflix offered class member subscribers a free service upgrade for a month and former subscribers a free one-, two- or three-out subscription as a settlement in a case claiming the service misled subscribers about how it prioritizes subscriber movie requests, what days it ships movies and how long it takes to get them.

Consumers who take advantage of the offer would have to cancel or reset their memberships after the month of courtesy service, or Netflix would continue their service at the higher and pricier level.

That "appears dangerously close to a promotional gimmick," and consumers who accept the terms "could end up worse off by joining the class and accepting the benefit" unless the upgrade or month of service terminates automatically according to a brief filed with the court. The brief also notes that the settlement value is about $3 for those who still subscribe and about $17.99 for non-subscribers who accept a month of free service as a settlement.

"It seems unlikely that any class members would consider filing individual actions to obtain such modest compensation," the brief states. It asks the court for, at a minimum, prominent disclosure of the need to cancel after a month and an easy means of doing so.

The FTC took no position on the validity of the underlying claims.

A Netflix spokesman said only that the company agreed to the settlement in the best interest of customers and shareholders and did not admit wrongdoing.

A judge's approval for the settlement is still pending.

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