FTC Opposes Netflix Settlement

The Federal Trade Commission has filed an amicus brief in opposition of the proposed Netflix class action settlement. The company was sued for advertising "unlimited" DVD rentals and "one day delivery" when it couldn't guarantee either. The FTC says the settlement is not beneficial to consumers.

As previously reported, Netflix agreed to 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.

The FTC balked at such a proposal, saying "Class members who participate in the settlement would be enrolled automatically in a negative option plan and charged for the upgrade or service after the free month, unless they chose to cancel."

The Commission also raised questions about the settlement's proposed payouts to the lawyers involved in the case, which topped $2.5 million. "The settlement also would require Netflix to modify its marketing materials and pay up to $2.528 million in class counsel fees and costs," the FTC said.

"The settlement would serve more as a promotional vehicle for Netflix, than a means of providing redress to consumers, and could leave some consumers in a worse position than if they had decided not to participate."

Such opposition does not mean the settlement will not be approved, but the FTC opinion could weigh heavily in court.