Wednesday, November 02, 2005

Netflix announces class action lawsuit settlement

Netflix has sent out mails to its current and ex-subscribers informing them of an out-of-court settlement of the class action lawsuit pending against Netflix for apparently failing to live up to its marketing claims. The lawsuit, Chavez v. Netflix, Inc. alleges that Netflix failed to provide "unlimited" DVD rentals and "one day delivery" as promised in its marketing materials.

Netflixwill provide the following benefit to customers if the settlement is approved:

  • Current Subscribers: A free one-month upgrade to the next service level (3 DVDs to 4 DVDs)

  • Former Subscribers (Pre-Oct 19,2005): A free one-month subscription at the 1,2,3 DVD levels

To opt-in, and if you meet the criteria above, go to and sign up before February 17, 2006, or file an objection if you choose.

This is not as rosy as it seems - the enhanced or new service will automatically continue/renew after the month is up, which means a large number of people will end up paying for extended service before they realize their free time is up, although an email reminder will be sent.

{Removed reference to law firm)Netflix announced an expected drop in 3Q earnings due to expenses from this settlement. The law firm stands to make over $2.5 million from this case, as per the filings. Netflix boards are buzzing at the perceived inequity between this amount and the one-month upgrade offer. Others feel acceptance of the settlement validates the alleged 'throttling' of DVDs to high-volume customers that has been going on.

Frivolous or deserved? You decide.

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