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FTC fights terms of Netflix settlement

Blasts DVD rental company, saying Netflix has tried to turn a class-action settlement into a marketing opportunity.

Alorie Gilbert Staff Writer, CNET News.com
Alorie Gilbert
writes about software, spy chips and the high-tech workplace.
Alorie Gilbert
2 min read
The U.S. Federal Trade Commission has blasted Netflix, saying the company has tried to turn a class-action settlement into a marketing opportunity.

The agency filed an amicus brief last week asking a San Francisco judge to reject or restructure the terms of the settlement, which Netflix proposed in October after facing charges that it broke customers' service agreements.

"The commission takes no position on the merits of the underlying suit but is troubled by a settlement that appears to provide greater benefits to Netflix than to consumers," the agency said in a statement.

Under the proposed settlement, some current and former Netflix subscribers are entitled to either a free, one-month membership or a free, one-month upgrade in their service plan. But if members aren't careful, they may end up paying for the new plans down the road--after the first month, the company intends to keep customers signed on to the upgraded or renewed services while charging for them, unless the members proactively cancel or modify their plans.

"The settlement would serve more as a promotional vehicle for Netflix than a means of providing redress to consumers, and could leave some consumers in a worse position than if they had decided not to participate," the FTC said.

Netflix, based in Los Gatos, Calif., also agreed to pay the $2.5 million in plaintiffs' attorneys' fees, prompting some critics to call the settlement more of a victory for lawyers than consumers.

A Netflix representative declined to comment on the FTC's position but reiterated that the settlement is in the best interest of Netflix shareholders and customers.

The class-action suit, filed in San Francisco County Superior Court in 2004, alleges that Netflix failed to provide the level of service promised in marketing materials, including one-day delivery and unlimited DVD rentals.

The judge hearing the case admitted the FTC's brief on Monday. A final settlement hearing was originally scheduled for Jan. 18 but has been set for Feb. 22 at the request of both parties, according to an FTC official.