March 1, 2012, 12:00 AM

Netflix agrees to pay $9 million to settle a lawsuit over video privacy

The online video rental and web-streaming retailer has agreed to pay $9 million to settle a class action lawsuit that charged it had violated the federal law by retaining the video-viewing histories of former subscribers.

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Netflix Inc., the online video rental and web streaming retailer, has agreed to pay $9 million to settle a class action lawsuit that charged it had violated the federal Video Privacy Protection Act by retaining personally identifiable information, or PII, in the form of video viewing histories of former subscribers.

"Netflix has knowingly retained the PII and sensitive video programming viewing histories of former subscribers in violation of state and federal laws," said a complaint filed last year in U.S. District Court for the Northern District of California. It added: "Netflix has continuously struggled to fully grasp its duty both to uphold the privacy rights of its current and former subscribers, as well as to comply with federal and state laws regarding the destruction of PII."

The lawsuit was filed by law firm Edelson McGuire LLP, Rancho Santa Margarita, Calif., on behalf of plaintiff Jeff Milans, a former Netflix subscriber who resides in Virginia, and on behalf of "all others similarly situated."

Passed in 1988, the Video Privacy Protection Act was designed to prevent video rental services from sharing information about what customers were watching. By keeping this data on file after subscriptions were cancelled, Netflix was able to better recommend new titles if customers ever re-engaged their memberships.

Netflix declined to comment further.

The complaint also noted that the U.S. Federal Trade Commission issued a public letter to Netflix in March 2010 to warn the company "about the release of data regarding the video programming viewing history of its subscribers."

Investors sue

In January of this year, Netflix was sued by investors alleging securities fraud. That suit alleges that from Dec. 20, 2010, to Oct. 24, 2011, Netflix executives gave false statements to investors regarding the company's business practices and relationships with content providers, and as a result were able to sell $90.2 million worth of shares at an inflated stock price. That suit is still pending.

A Netflix spokesman said the company does not comment on legal matters.

stefany@verticalwebmedia.com

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