Announced Action for January 6, 2006

Commission authorization of amicus brief filing: The Commission has authorized the staff to file an amicus brief opposing a proposed class action settlement in Chavez v. Netflix, Inc., No. CGC-04-434884 (Sup. Court of San Francisco County, Cal.). The plaintiff in the case has alleged that Netflix failed to provide “unlimited” DVD rentals and “one day delivery” of DVDs as represented in its marketing materials. The Commission takes no position on the merits of the underlying suit, but is troubled by a settlement that appears to provide greater benefits to Netflix than to consumers.

Under the proposed settlement, class members who are current Netflix customers would receive a free service upgrade for one month and former Netflix customers would receive one month of free service. 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 settlement also would require Netflix to modify its marketing materials and pay up to $2.528 million in class counsel fees and costs.

According to the brief, which was filed on January 5, 2006, and can be found on the Commission’s Web site as a link to this press release, the FTC has two basic concerns with the Netflix settlement. First, 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. Second, the notice to class members does not adequately inform them about the existence of the negative option and the settlement agreement, does not require disclosure of the terms of the negative option plan, and fails to specify how consumers can cancel once they are enrolled. Class members need this information to understand the cost they will incur if they do not cancel the free service or upgrade before the deadline and the steps they will need to take to cancel the service or upgrade and avoid future charges.

The Commission believes the settlement should be either rejected or restructured to correct the above deficiencies. The Commission vote authorizing the staff to file the brief was
4-0. (FTC File No. P024210; the staff contact is Carol J. Jennings, Bureau of Consumer Protection, 202-326-3010.)

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.