Netflix Settles Class Action Lawsuit

Netflix has settled class action lawsuit brought against the company last year for allegedly duping potential customers by advertising "unlimited" DVD rentals and "one day delivery." Current and former Netflix customers will receive a one-month perk, but the real winners of the settlement are the lawyers.

While not admitting any wrongdoing, Netflix will provide customers with a one-month service level upgrade free of charge. This means that Netflix users subscribed to the 3 DVDs at-a-time program will be upgraded to 4 DVDs at-a-time for one month. After the free month, customers must remember to downgrade their service manually or face higher fees.

Former customers who were Netflix members prior to January 15, 2005 will receive a free month of service if they subscribe to Netflix once again. The membership and monthly charges will continue on a monthly basis after the initial month.

To receive any benefit, eligible customers must complete an online registration before February 17, 2006. Those who wish to opt-out of the settlement must send a notice by December 28, 2005. A final hearing is scheduled for January 18, 2006 to determine if the awards are fair.

The plaintiff in the case, Frank Chavez, will receive $2,000 for his time and efforts, while Chavez's attorneys Adam Gutride and Seth Safier reap most of the benefits from the settlement agreement.

Netflix will pay the two San Francisco attorneys $2,528,000 in legal fees and other costs. Netflix is also paying for all of the costs involved in the settlement, including notifying customers and providing the benefits. The attorneys' fees will be considered and paid separately from the class action award.

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