FTC opposes Netflix settlement

Calls proposed deal a "promotional vehicle"

By Jennifer Netherby -- Video Business, 1/12/2006

JAN. 12 | The Federal Trade Commission is asking a San Francisco court to reject Netflix’s proposed class-action settlement, calling it a “promotional vehicle” for the online rental company.

Netflix agreed to spend between $3 million and $4 million last year to settle the class-action lawsuit, which charged that the company didn’t provide unlimited rentals and one-day deliveries as advertised.

Under the proposed settlement, Netflix said it would give qualifying subscribers a free month of upgraded service and non-members a free month of service to settle the suit. However, users who sign up for the free upgrade or free month of service would have to cancel out after the month or they would continue to be charged at the upgraded rate.

The FTC filed an amicus brief in San Francisco Superior Court on Jan. 5 and said in an announcement on the filing that it is “troubled by a settlement that appears to provide greater benefits to Netflix than to consumers.”

The FTC said the class-action notice doesn’t “adequately” inform members that they must downgrade the service after the free month and “could leave some consumers in a worse position than if they had decided not to participate.”

The agency is asking the court to reject the settlement or restructure it. The agency said it is not taking a position on the lawsuit itself.

Under the Netflix settlement agreement, the company didn’t admit to wrongdoing.

A Netflix spokesman didn’t immediately return a call for comment.

A final settlement hearing in the case is scheduled for Feb. 22.

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