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Netflix pays $9 million to settle privacy violation lawsuit

After a higher-than-expected fourth quarter, the video subscription service unburdens itself of a pending yearlong class action suit and settles for $9 million.

Netflix experienced a bumpy year in 2011. Its shares spiked and plummeted, it lost thousands of subscribers then gained them back, it faced growing competition, and a class action lawsuit was filed against it alleging that the video subscription service violated consumer's privacy.


But things seem to be looking up for Netflix--not only did it do better than expected in the fourth quarter and now has more subscribers than ever, it also settled the lawsuit.

On Friday, Netflix filed an agreement to pay $9 million to settle the class action suit, which was originally submitted in January 2011.

The lawsuit was filed in support of two Virginia residents, Jeff Milans and Peter Comstock, in San Francisco's federal court. The plaintiffs brought the case under the Video Privacy Protection Act--a law passed in 1988 that makes it illegal for video rental services to share information on what their customers watch. They alleged that Netflix broke this law by keeping the records of what their subscribers watched up to two years after customers cancelled their plans.

According to the Huffington Post, Netflix said it didn't make any admission of wrongdoing when settling the suit.

Netflix's 2011 annual report filed with the U.S. Securities and Exchange Commission states that the $9 million payout was included in the company's 2011 expenses and "is anticipated to be paid in 2012."

"The company had previously evaluated this claim and determined it to be immaterial and that a potential loss was not probable," reads the report. "Accordingly, no amount had been accrued prior to the mediation and settlement."

Although the $9 million settlement decreased Netflix's fourth-quarter income by 14 percent, 2011 was still the company's most lucrative year with a gross profit of $1,164,676, compared with $805,270 in 2010.

For the fourth quarter, Netflix initially reported a net income of $40.7 million, or 73 cents a share; but, according to the Huffington Post, late Friday the company released a change in a regulatory filing that put its fourth-quarter income at $35.2 million, or 64 cents per share.