Netflix “Class Action Settlement” Is A Trap

Posted on November 2, 2005

I received an e-mail today from Netflix informing me of a legal development:

You are receiving this notice because you were a paid Netflix member before January 15, 2005. Under a proposed class action settlement, you may be eligible to receive a free benefit from Netflix.
A class action lawsuit entitled Chavez v. Netflix, Inc. was filed in San Francisco Superior Court (case number CGC-04-434884) on September 23, 2004. The lawsuit alleges that Netflix failed to provide “unlimited” DVD rentals and “one day delivery” as promised in its marketing materials. Netflix has denied any wrongdoing or liability. The parties have reached a settlement that they believe is in the best interests of the company and its subscribers.
Netflix will provide eligible subscribers with the benefit described below, if the settlement is approved by the Court.

• Current Netflix Members: If you enrolled in a paid membership before January 15, 2005 and were a member on October 19, 2005, you are eligible to receive a free one-month upgrade in service level. For example, if you are on the 3 DVDs at-a-time program, you will be upgraded to the 4 DVDs at-a-time program for one month. There will be no price increase during the upgraded month. (If you cancel your membership after October 19, 2005 and before you receive the upgrade, you will have to rejoin to get the upgrade.)
• Former Netflix Members: If you enrolled in a paid membership before January 15, 2005 but were not a member on October 19, 2005, you are eligible to receive a free one-month Netflix membership on your choice of the 1, 2 or 3 DVDs at-a-time unlimited program. (If you rejoin after October 19, 2005 but before you receive the free one-month membership, you will receive a credit for the free month when it becomes available.)

They’ve set up a web site where class members can go to claim their benefits from the settlement.

However, before you claim your free month of service, be sure to read the whole e-mail — or, better yet, read the actual settlement agreement. Netflix has helpfully posted both on the settlement site.

If you do so, you will discover that this “benefit” has a stinger attached:

After the benefit period ends, the new or upgraded level of service will continue automatically (following an email reminder) and you will be billed accordingly, unless you cancel or modify your subscription. You can cancel or modify your subscription at any time.

(Emphasis mine)

So, in other words, they will “settle” with you by giving you a free month of upgraded service — but then, after that month, they will keep you at the higher service level and just bill you for that, instead of what you used to pay! Unless you’re on the ball enough to manually go into the system at the end of the month and re-set your service to its old level, that is; and we all know that some people will forget to do that.

This is just ridiculous. It’s less a “settlement” and more like a promotion for Netflix. I don’t quibble with them offering a free month of upgraded service as the settlement benefit — if that’s what the claimants are happy with, that’s fine, you can always opt out of the class and sue Netflix yourself if you disagree — but when the month ends they should restore your account to the way it was automatically, not require you to do that yourself. No “benefit” should expose claimants to the risk of owing the company money just for claiming the benefit.

The web site is also misleading. Notice that the e-mail says the following at the end:

To get more information about the settlement and procedures, and to take options 1, 3 or 4, visit www.netflixsettlement.com.

I wanted to take option 3 — excluding myself from the class — so I clicked through to the settlement site and logged in, figuring that it would give me an option after logging in to exclude myself from the class.

To my surprise, that’s not the case — when you log in, you are electing to receive the settlement benefits! So now I have to contact Netflix and tell them that I didn’t mean to do that. Nowhere in the log-in process does it warn you that logging in means that you are accepting the agreement. A classic case of bad user interface leading to unintended consequences.

My advice? Do nothing, or opt out of the class altogether. This “settlement” will cause you more problems than it’s worth.