Internet-based movie service Netflix got into trouble with its subscribers when it briefly tried to spin off its DVD rental business into a separate company last year. Now the company has settled a class action lawsuit filed on behalf of former clients for $9 million to benefit nonprofit privacy organizations. The lawsuit raised a complaint over how Netflix held onto the plaintiffs’ personal and rental history data.

The litigation was based on a 1988 federal law called the Video Privacy Protection Act. That law makes it illegal to share people’s video rental history. Though the law predated tracking of online activities, attorneys for the class said it applied to the way Netflix treats data it collects when customers visit its website.

According to the lawsuit, Netflix kept records of videos that former subscribers watched through its streaming service for up to two years after the customers cancelled their subscription. That violated the former customers’ privacy and the video history law, the litigation contended.

As part of the settlement, Netflix will pay $9 million into a fund. Most of the fund will go to as-yet-unnamed groups that let the public know about their rights in regard to privacy of personal information. Of the remaining funds, up to $2.25 million will go to attorney’s fees, $30,000 will go to the six named plaintiffs and $25,000 will cover other legal expenses. In addition, Netflix will change its company policies to its retention of rental history to one year after customers cancel their subscriptions.

Members of the class in Las Vegas should expect to begin receiving notices early in August.

Source: ABA Journal, “Netflix Notifies Customers of Class Action Settlement; Privacy Groups Will Benefit,” Debra Cassens Weiss, Aug. 1, 2012

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