Is It a Real Class Action Settlement, or Is It a Scam? Both.

Jacob Sullum | November 2, 2005

Today I received an e-mail message notifying me that a couple of lawyers in San Francisco, Adam Gutride and Seth Safier, took it upon themselves to sue Netflix on my behalf last year. If you rent DVDs from Netflix, you probably got the same notice. It seems we are eligible for "benefits" as a result of a class action settlement, assuming the agreement receives final court approval.

It is hard to figure out exactly how we were wronged (the "long form notice" says details are conveniently available at a courthouse in San Francisco), but apparently it had something to do with Netflix promises of "one-day delivery" (sometimes it takes two!) and "unlimited rentals" (although you can keep the movies as long as you want, you're limited to three or four at a time, depending on your membership plan). The compensation for these imperceptible injuries is appropriately trivial: one month's free membership upgrade (from the three-DVD plan to the four-DVD plan) if you still belong, one month's free membership if you've quit.

On the whole, I've been very satisfied by Netflix's prices, selection, and service, especially compared with those at the local Blockbuster. In any case, it's hard for me to get excited about my free upgrade, since I've never felt a need to keep more than three movies at a time. I suspect many other members feel the same way. In fact, the free upgrades/memberships may actually benefit Netflix, since they continue automatically (for a fee) after the first month unless you remember to cancel. As is often the case with class actions, the true beneficiaries are the lawyers, who will receive more than $2.5 million for arranging this worthless deal.

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|11.2.05 @ 4:09PM|#

The compensation for these imperceptible injuries is appropriately trivial: one month's free membership upgrade (from the three-DVD plan to the four-DVD plan) if you still belong, one month's free membership if you've quit.

You know, there has been a lot of discussion in the "legal ethics" over whether these sorts of settlements are remotely ethical.

|11.2.05 @ 4:10PM|#

Got my notice yesterday. What a joke. And I didn't catch the "cancel or you will pay for the second month" thing. Could this actually be an example of a lawsuit where the lawyers AND the defendant both profit from the filing and settling of a lawsuit? Maybe a new business model?

|11.2.05 @ 4:11PM|#

joe,

Where was the fraud/theft involved in this case?

|11.2.05 @ 4:12PM|#

Daniel Montiel,

Not new at all. Such cabals happen all the time. This is indeed the problem associated with attorneys having no real, cognizeable client.

|11.2.05 @ 4:14PM|#

Who gets the settlement money that the "plaintiffs" don't claim?

Gimme Back My Dog|11.2.05 @ 4:16PM|#

DM,

The tobacco settlement is an example of this arrangement on a much larger scale.

|11.2.05 @ 4:21PM|#

Dog and hakluyt,
Now I'm depressed.

We need to stop making stupid people

|11.2.05 @ 4:32PM|#

I could discuss the legal aspects, but I'll just say that since Netflix uses pop-ups, they deserve anything and everything they get. In the karmic sense, anyway.

|11.2.05 @ 4:33PM|#

Where was the fraud/theft involved in this case?

Are you kidding? This is the most blatant case of false advertising since my lawsuit against the movie The Neverending Story!

|11.2.05 @ 4:37PM|#

I thought the issue with Netflix's "unlimited rentals" claim was their policy of 'throttling' people who rent more than a certain number of movies per month. If you consistently go through more than ~12 movies a month on the 3-movies-at-a-time plan, they start to take a lot longer to send and receive your movies (speaking from personal experience here, but I still use the service because they're the cheapest one that has a decent selection of foreign films).

It's a totally minor "fraud" that is only fraud to a person so stupid as to blindly sign up without reading the basic terms of the netflix agreement, and with a tendency to read sales pitch in terms as broadly as possible in favor of the stupid person.

I.E. its only fraud to the reasonable idiot.

I suggest a rule. I think class actions have there place in society. It can be very useful. It can also serve as a retirement fund for connected lawyers (not just any shyster can file a class action)...

The rule is this: a class action cannot be based on a reasonable idiot (i like that phrase) feeling shafted. It has to be a genuine violation of the terms of the agreement, not just a contrived conflict between the advertising and the actual terms.

Then it would be fraud, and would eliminate the silly new legal fiction of the reasonable idiot.

|11.2.05 @ 4:39PM|#

Where's John Luigi Ferri when you need him?

Franklin Harris|11.2.05 @ 4:39PM|#

"I could discuss the legal aspects, but I'll just say that since Netflix uses pop-ups, they deserve anything and everything they get. In the karmic sense, anyway."

They use pop-ups? I wouldn't know because Firefox blocks any pop-ups that might be embedded in the Netflix site.

I wonder if I'm part of the settlement. I first signed up for Netflix months ago, then canceled because I didn't have the time to watch half the stuff I was renting, then reactivated my account this weekend because neither Blockbuster nor Movie Gallery had "Rosencrantz & Guildenstern Are Dead" or a single Wim Wenders film.

|11.2.05 @ 4:40PM|#

Lionel, damn straight. I bought that movie expecting to be able to watch forever, and then, shockingly, it ended.

Netflix definitely screws with me to make my 3-at-a-time subscription less valuable:

They delay acknowledgement of receipt of the DVDs I return by several days, which in turn allows them to delay sending me the next DVD in my queue. I know that first class mail from my PO in the western suburbs of Boston, to the Netflix distribution center in Worcester, MA typically takes 1 or 2 days. However, Netflix will often delay acknowledgement of return up to *7* days.

I have read in the past that Netflix will purposely "throttle" people they consider to be renting "too frequently". Apparently, a favorite pastime of some renters is to rip a DVD onto their computer immediately upon receipt, return after ripping is done a few hours later, and then watch (and possibly copy) at their leisure.

However, I hardly fit the profile of such a "Netflix abuser". With my schedule, typically I'll hold on to movies for a few days before they are watched. Sometimes my schedule is such that I don't get around to watching rentals for a few weeks. However, when I do send a movie back, I'd like a quick turnaround on getting the next one. My availability for watching movies comes in spurts and I hate being left with no movies for over a week when I finally get around to watching the three I've got.

This settlement reward isn't worth the bother of me redeeming it.

|11.2.05 @ 4:55PM|#

Are you kidding? This is the most blatant case of false advertising since my lawsuit against the movie The Neverending Story!

Excellent use of a Simpsons reference. ;)

Hakluyt,

Such cabals happen all the time.

Why do you need DVDs if you have cabal?

How would you recommend dealing with fraud/theft situations of this sort, in which the amount wrongfully taken from any one individual is so small as to make any effort to recover it wasteful, but which add up to a considerable amount in the aggregate?

Could the answer be... ticked off customers not remaining their customers?

By the way, the total charge Netflix is taking is $3.2 million. So the lawyers got 78% of the haul.

I ignore these "class actions filed on my behalf" as a matter of principle.

|11.2.05 @ 4:59PM|#

Franklin Harris-Rosencrantz and Guildenstern, eh? Funny movie.

I use Firefox at home, but the antiquated Macs at work won't run it, so I know who uses pop-ups. Netflix does, and not just on their own site. Therefore, I won't deal with them. My personal rule is simple-I don't deal with companies that engage in that form of advertising.

|11.2.05 @ 5:14PM|#

Number6,

I block all pop-ups and cookies.

|11.2.05 @ 5:26PM|#

Hakluyt,

Unless you don't do a lot of surfing - don't you find blocking cookies to be a major hassle? How do you distinguish useful cookies among the gibberish that they usually present you with when asking to approve them?

|11.2.05 @ 5:27PM|#

cabal was a pretty good game. I was sad when they took it out of the lobby of the hockey rink.

|11.2.05 @ 5:29PM|#

Rhywun,

I block any cookie that I am presented with via any of my cookie blockers. I alos block active-x (entirely), etc. If a site won't let me use it because it wants to load a cookie then I don't use the cookie. Too much malware in the form of cookies out there for me to worry about unblocking any individual site.

|11.2.05 @ 5:30PM|#

Rhywun,

You know Reason tries to load cookies onto your computer, right? Whether it is their cookie or something that someone has slipped onto their webpage I dunno, but they are permanently blocked.

|11.2.05 @ 5:34PM|#

Hakluyt- With Firefox, I steer a middle course. Each time a site tries to load a cookie, it asks me if I want to accept it, accept it until the end of the session, or deny it. Cookies that are useful (Amazon, forum cookies) stay. Others I either kill at the end of the session, or deny altogether.

Since I run Linux at home, I don't worry too much about spyware/adware, or even most malware.

|11.2.05 @ 6:02PM|#

Hak:

I know reason.com sets a cookie which is supposed to prevent me from having to fill in my name and email address each time I post, but it hasn't seemed to be working lately.

|11.2.05 @ 6:12PM|#

jf,

Well, nothing really works on this website. :)

|11.2.05 @ 6:18PM|#

It says a lot about how far the USPS has come in the past couple of decades that it is more plausable that a profit-dependent company in a fairly competetive market would throttle its assembly line processing of returns and shipments to "discipline" overly enthusiastic customers, than the USPS might be mishandling and misrouting flimsy envelopes enclosing rigid discs.

|11.2.05 @ 6:47PM|#

cabal was a pretty good game. I was sad when they took it out of the lobby of the hockey rink.

You know, I considered making a joke about this, but decided not to because I thought it would be too obscure.

Kudos for proving me wrong.

|11.2.05 @ 7:05PM|#

I'll just say that since Netflix uses pop-ups

I use Opera, haven't seen a popup in years, I don't think. I also delete cookies on exiting the browser -- only thing that seems to have affected really is that I have to type in my name and address when I want to comment at Hit & Run.

|11.2.05 @ 7:41PM|#

As far as I can tell, the "typing in your name and address" does not depend on Cookies, but on browser field completion. The main cookie that I'm aware of here stops the popup asking you to subscribe to Reason from appearing more than once per day when you go to the home page.

|11.2.05 @ 7:42PM|#

Oh--you mean the Remember Me radio button--never mind my previous post.

|11.2.05 @ 7:55PM|#

i would have had no interest in this lawsuit until yesterday.
my experience with netflix has been a pleasure. i got all the movies i could watch at a relatively decent rate and the selection seemed unlimited. i to took great pleasure in finding rosencrantz and guildenstern are dead, always a good test case for selection. but, i have not been able to find "Elvis meets Nixon" or possibly "When Elvis met Nixon"
Now I Demand Compensation!!!

The Owner's Manual|11.2.05 @ 8:28PM|#

I've used Netflix heavily a couple of years now and never experienced anything like the 'throttling' described. Maybe Florida is different?

|11.2.05 @ 8:31PM|#

We are a long "throttled" customer of Netflix. It's a known practice and if you google it, you will see a lot of pissed off people. I remain a customer only because they are faster than my library system. (And foreign selection)

I am a high volume customer. We don't watch broadcast TV at all, no cable, no satellite, no rabbit ears, nada. We only watch DVD's. So, we watch nearly everything from Netflix the same day. It doesn't mean we're pirates, and it's not up to Netflix, or anyone here to imply ANYONE is. And certainly they don't have to "keep honest people honest" by screwing them out of the membership as advertised and paid for by slowing down the service.

I think class action lawsuits are nothing but a scheme to fatten up lawyers, too. This certainly isn't something I support. But Netflix sure hasn't done anything in the way of customer service when I have addressed this with them on numerous occasions...quite to the contrary, they hose us to make a buck. If you say you're going to provide a certain service, provide it. Period. So I'm not surprised they fell pray to something like this.

Perhaps they will change their terms to reflect an honest policy as a result.

|11.2.05 @ 9:10PM|#

"It says a lot about how far the USPS has come in the past couple of decades that it is more plausable that a profit-dependent company in a fairly competetive market would throttle its assembly line processing of returns and shipments to "discipline" overly enthusiastic customers, than the USPS might be mishandling and misrouting flimsy envelopes enclosing rigid discs."

If you really want to see how good the USPS are, just go abroad. I've often heard the postal service - the Royal Mail - referred to as the Royal Fail (the corresponding moniker for their package delivery division - Parcel Force - is/was Parcel Farce). I'm not saying that a proper competitive marketplace couldn't more effectively provide the same service, of course.

But I digress. In my experience, Netflix typically throttles by waiting for up to 48 hours after receiving a disc to send the next disc in your queue, even though the disc is available - which is pretty hard to blame on the USPS. I have heard of problems with Netflix envelopes and the sorting machines used by the USPS, though.

Netflix's other throttling trick is to give you return envelopes marked for distribution centres a long way away; for example, my nearest centre is in Gaithersburg, MD, but I've received envelopes marked for Georgia and New York. That way it takes a couple of days longer for them to receive the movie, so you get through fewer movies. That trick doesn't work if you re-label the envelopes and cover/deface the routing barcode, of course.

I read somewhere that every movie rental costs Netflix about $1.80, so they're losing money on everyone who rents more than 10 movies a month on the 3-at-a-time plan. The thing is, their terms and conditions didn't really allow for them to throttle until earlier this year, at least based on my reading. In other words Netflix were advertising their service as unlimited, they didn't limit the service during the free trial period, but after the trial period was over they would start to limit the level of service some members would receive. That sort of thing looks a lot like breach of contract to me.

Without a class action system, people could get away with breach of contract as long as no one plaintiff (or group of plaintiffs suitable for joinder) has enough of an incentive to sue. There's nothing inherently un-libertarian about tweaking the court system to make suits like that more likely. The real problem I have with the class action system is that other people can extinguish your rights without you ever knowing about it.

That said, class action settlements (and judgements) generally turn out to be pretty crappy for the class members.

IO ERROR|11.2.05 @ 9:11PM|#

Hm, I canceled my netflix account a while back, and in retrospect, I suspect I might have been throttled once or twice myself.

I certainly didn't receive any DVDs "next day," though. More like 2-3 days.

|11.2.05 @ 9:18PM|#

I join Hakluyt in asking joe exactly what "fraud" or "theft" has been committed by Netflix, and in what way any single customer suffered any harm from it that rises to the level of a tort.

Keeping in mind that, when I, not too long ago, accused both the makers and the sellers of homeopathic "remedies" of perpetrating fraud on people, joe told me I was making a big deal out of nothing.

I'd hate to think that joe conveniently switched sides just to try to tweak the big dumb ol' libertarians over their flogging of what he perceives as one of their hobbyhorses, but it sure looks that way to me.

Christopher Ambler|11.2.05 @ 10:14PM|#

Might I direct you to a site I set up today: http://www.NetflixSettlementSucks.com

I�ve already gotten a couple of enquiries from media, and I intend to make the site as visible as I can to members of the class. I am, understandably I hope, livid.

Dave W.|11.3.05 @ 3:21AM|#

I remember when I was a happy Netflix customer several years ago, I thought those exact same advertising slogans were a false advertising suit waiting to happen. I remember wondering how they got that language past legal.

It is good that false advertising law is administered by private lawsuits, rather than by regulators. I suppose we could argue about whether we need false advertising law at all, but the present case seems at least non-frivolous to me, even though I never dreamed of suing when I first whiffed trouble back in 2002.

|11.3.05 @ 9:52AM|#

Class action suits are inherently wrong. The court system is supposed to be about individual dispute resolution. Allowing people to bundle a bunch of nearly worthless claims together in order to make it worth litigating defeats the whole purpose - if it's not worth litigating to you individually, then don't litigate.

As everyone seems to realize now, the only people who benefit from class actions are the lawyers. And the funny (as in funny enough to make me cry) part is that the rules for class action prevent competition between lawyers - judges can bounce lawyers who they deem too "inexperienced" in class actions in favor of bigger contri... er more experienced lawyers.

I've been trying for a while, but I honestly can't find one redeeming feature of class action suits.

|11.3.05 @ 9:58AM|#

I don't understand why everybody is so offended about private lawyers enforcing contract rights between private parties.

Is it that you would all prefer that the Federal Trade Commission or some other government agency to be involved in enforcing these regulations? Do you seriously think that the govenment's regulatory agencies could do a better job than private lawyers and an independant judiciary? For me, the answer is entirely clear, I trust any private person or entity -- lawyers included -- more than I trust the government. What's more, these contract rights have been enforced without the need to expend any government resources or tax dollars.

In economic terms, this seems the perfect result. The costs of the enforcement are borne by the wrongdoer, not by taxpayers. Moreover, the controversy can be decided by an independant and objective judiciary, and not by the subjective whims of legislatures or regulatory agencies. Isn't this the Hayekian ideal?

Most everybody here concedes that NetFlix has been screwing around on some level, and clearly NetFlix didn't fancy their chances of prevailing in Court. Without these lawyers and the plaintiff undertaking the effort and risk to sue, either NetFlix would have continued to get away with screwing everybody, or the government would have had to get involved. For me its clear that this is the best result of all of these possibilities.

"Without a class action system, people could get away with breach of contract as long as no one plaintiff (or group of plaintiffs suitable for joinder) has enough of an incentive to sue. There's nothing inherently un-libertarian about tweaking the court system to make suits like that more likely. "

I don't know. I'd say the idea of individual responsibility would say that a forced collectivization of a suit is bad, even if you get past the point of being responsible for making the decision whether or not to enforce your rights.

That's how the sca ... er, class action works. You're essentially forced into the class (yes, there are opt-outs, but that's getting things in reverse).

|11.3.05 @ 10:00AM|#

"either NetFlix would have continued to get away with screwing everybody"

Well, if people really felt they were getting screwed over, they could have just cancelled their subscription.

Problem solved. No government solution needed.

R C Dean|11.3.05 @ 10:09AM|#

I don't understand why everybody is so offended about private lawyers enforcing contract rights between private parties.

Unless Netflix had a specific and explicit service guarantee (2 day turnaround when you flip one movie for the next, say) then the practice of throttling is not a breach of contract. Crappy service, maybe, but not a breach. Show me the language in the contract before you talk about breach of contract, in other words.

Dave W.|11.3.05 @ 10:24AM|#

RC Dean:

Why do you imply that the Netflix advertisements do not count as language "in the contract?"

Viking Moose|11.3.05 @ 11:31AM|#

DAMMIT. It's a floor wax AND dessert topping, too. and it's yer sister. yer daughter...

(jest reportin'.)

|11.3.05 @ 11:33AM|#

Phil,

I'm not arguing about the particulars of the case, but about the principle behind class action lawsuits like this - where the injury is high volume, but low intensity for each injured party.

So far, the only answer I've seen is that the offender should be able to keep its ill-gotten gains if no one is sufficiently motivated to lose money by pursuing their legal rights. Suck it up, walk it off - typical Republicans-who-smoke-pot corporatist double talk.

As far as the difference between the homeopathic "medicines" and Netflix, the people who buy homeopathic remedies know, or should know, that there is controversy about their effectiveness. Sort of like people who buy Santeria candles. They are willingly making a leap of faith. Not so with this situation, in which Netflix's customers are, allegedly, being promised one thing and delivered another.

|11.3.05 @ 12:12PM|#

I received the notice, and I haven't used the service in years. "In the old days" they would send a replacement DVD as soon as you told them the first one was in the mail. They didn't even wait to receive it. I take it that this policy has changed.

What amuses me most is the remedy. 1 month free, with automatic paid renewal. This is only marginally different from their standard offer to new customers of 2 weeks free, with automatic paid renewal.

Total joke.

|11.3.05 @ 12:21PM|#

We need a Netflix-like service not operated by the equally scum-sucking Blockbuster or Walmart. I'd been kicking myself for not getting with it and trying Netflix, but now I'm glad I haven't. And ditto on the pop-ups resentment.

|11.3.05 @ 1:08PM|#

I don't want to burst anyone's bubble, but I'm pretty sure I've seen reason.com use popups...

|11.3.05 @ 1:45PM|#

Wow. I moved to a new place a few months ago and never hooked myself up for cable. I figured I could cut down costs significantly by exclusively using Netflix. For about a month things were perfect.. they would turn around a slot within a day, and I racked up a huge amount of rentals. However, I've noticed they are now consistently adding an additional day on the turn-around.

Looks like I'm on their shit-list..

|11.3.05 @ 3:49PM|#

I'm not arguing about the particulars of the case, but about the principle behind class action lawsuits like this - where the injury is high volume, but low intensity for each injured party.

Again: What injury? If you're going to refer to "suits like this," then you have to tell me what harm was suffered. What, someone got their copy of A Lot Like Love on Saturday instead of Friday, ruining their Ashton Kutcher film festival? Help me out, here.

I don't oppose class action lawsuits. I oppose lawsuits where nobody was harmed by anything.

So far, the only answer I've seen is that the offender should be able to keep its ill-gotten gains if no one is sufficiently motivated to lose money by pursuing their legal rights.

You're lying. Several people have proposed alternative ideas right in this thread. Well, OK, if you didn't read them, you're not lying, just lazy.

As far as the difference between the homeopathic "medicines" and Netflix, the people who buy homeopathic remedies know, or should know, that there is controversy about their effectiveness. Sort of like people who buy Santeria candles. They are willingly making a leap of faith. Not so with this situation, in which Netflix's customers are, allegedly, being promised one thing and delivered another.

This is the funniest thing I have ever read. People who are trying to cure illnesses and are getting taken by people selling scented water, well, hey, caveat emptor, baby. People who desperately need to see Stealth right now have been damaged somehow by getting their copy a day late.

And you think libertarians have misplaced priorities?

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