February 24, 2006, 12:00 AM

Netflix revises proposed settlement in class-action lawsuit

Netflix has revised a proposed settlement in a class-action lawsuit so that customers qualifying for free DVDs from online DVD rental service won’t be charged automatically when the one-month offer expires.

Kurt Peters

Executive Editor

Netflix Inc. has revised a proposed settlement in a class-action lawsuit so that customers qualifying for free DVDs from the online DVD rental service won’t be charged automatically when the one-month offer expires.

The Federal Trade Commission had filed a friend-of-the-court brief opposing the original proposed settlement, saying it served more as a promotional vehicle for Netflix than as a means of providing redress to consumers. In the brief, filed last month in superior court in San Francisco, the FTC also claimed that the settlement would leave many consumers in a worse position than if they had decided not to participate.

In the suit Frank Chavez, et al. v. Netflix Inc., filed in September 2003, Chavez contended that Netflix failed to provide “unlimited” DVD rentals and “one day delivery” as promised in marketing materials. Netflix denied any wrongdoing or liability in the case but agreed to the settlement.

The proposed settlement requires Netflix to modify its marketing materials and pay up to $2.528 million in class counsel fees and costs. It also gives current Netflix customers a free service upgrade for one month and former customers one month of free service.

What the FTC objected to was a provision that would automatically enroll those customers in the plans after one month unless the customers canceled. Netflix offered many options for the customers to opt out under the original settlement proposal, but it agreed to change the settlement so those customers would have to opt in, says a Netflix spokesman. “We think it’s best for all parties,” he says.

The settlement applies to current and former customers who enrolled in a paid Netflix membership program prior to Jan. 15, 2005.

Netflix is No. 18 in the Internet Retailer Top 400 Guide to Retail Web Sites.

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