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Netflix Altering Settlement Agreement

17 Feb, 2006 By: Holly J. Wagner

Netflix appears poised to change settlement terms in a class action case to resolve the matter and overcome the objections of consumer advocates.

The Federal Trade Commission (FTC) and consumer groups are opposing the proposed settlement, contending it does more to benefit Netflix than consumers.

At issue is a clause that would force consumers who take advantage of the settlement (a month of free or upgraded service) to cancel or reset their memberships after the month or continue their service at the higher and pricier level.

The Associated Press reported that Netflix is ready to change the terms so the free or upgraded service would terminate automatically after the settlement month, although consumers could opt in to maintain the service.

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.

Netflix changed its terms and conditions to disclose some of the practices Chavez alleged were deceptive, mainly “throttling,” or manipulating the order in which requests were filled based on the subscriber's rental volume.

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.

The FTC has taken no position on the validity of the underlying claims. The settlement was scheduled to go before a judge Wednesday, but has been postponed by a month to allow for possible revisions.

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