Legal issues and controversies surrounding Netflix

Netflix is an American global provider of streaming films and television series. Since its launch in 1998, it has been at the centre of numerous legal issues and controversies.

Recommendation algorithm and the "Netflix Prize"

In 2006, Netflix held the first Netflix Prize competition to find a better program to predict user preferences and beat its existing Netflix movie recommendation system, known as Cinematch, by at least 10%. CEO Hastings did not necessarily expect a lot of quick progress towards the prize,^[1] "We thought we built the best darn thing ever."^[1] But by June 2007, Hastings said the competition is "three-quarters of the way there in three-quarters of a year."^[2] Three teams – an AT&T Research Team called BellKor, commendo's team BigChaos, and Pragmatic Theory – combined to win the 2009 grand prize competition for $1 million. The winning team, called BellKor's Pragmatic Chaos, used machine learning techniques to find that, for example, the rating system people use for older movies is very different from that used for a movie they just saw. The mood of the day made a difference also; for example, Friday ratings were different from Monday morning ratings.^[3]

In 2010, Netflix canceled a running contest to improve the company's recommendation algorithm due to privacy concerns: under the terms of the competition, contestants were given access to customer rental data, which the company had purportedly anonymized. However, it was discovered that even this anonymized dataset could, in fact, identify a user personally. Netflix was sued by KamberLaw L.L.C. and ended the contest after reaching a deal with the FTC.^[4]

Throttling of DVDs by mail

Netflix's DVD allocation policy – referred to by many as "throttling" – gives priority shipping and selection to customers who rent fewer discs per month. Higher volume renters may see some of their selections delayed, routed elsewhere, or sent out of order.^[5] Netflix claims that "the large majority of our subscribers are able to receive their movies in about one business day following our shipment of the requested movie from their local distribution center."^[6] However, not all shipments come from the subscriber's local distribution center, and shipments from distant centers are often delayed, as well.

In September 2004, a consumer class action lawsuit, Frank Chavez v. Netflix, Inc.,^[7] was brought against Netflix in San Francisco Superior Court. The suit alleged false advertising in relation to claims of "unlimited rentals" with "one-day delivery." In January 2005, Netflix changed its terms of use to acknowledge "throttling" (Mike Kaltschnee, owner of the Hacking Netflix blog, says Netflix calls this practice "smoothing" internally).^[8]

In October 2005, Netflix proposed a settlement for those who had enrolled as a paid Netflix member prior to January 15, 2005. These earlier members would be able to renew their subscriptions with a one-month free membership, and those early members with current subscriptions would receive a one-month free upgrade to the next-highest membership level. Netflix's settlement denied allegations of any wrongdoing, and the case did not reach a legal judgment. Netflix estimated the settlement cost approximately US$4 million, which included up to US$2.53 million to cover plaintiff lawyer fees. A controversial aspect of the settlement offer was that the customer's account would continue at the renewed or upgraded membership level after the free month provided by the settlement, with customers being charged accordingly unless they opted out after the month-long free period ended. After Trial Lawyers for Public Justice filed a challenge to the proposed settlement^[9] and the Federal Trade Commission filed an amicus brief urging the rejection or modification of the settlement, Netflix offered to alter the settlement terms, requiring customers to actively approve any continuation after the free month. The final settlement hearing took place on March 22, 2006.^[10] Implementation of the settlement was delayed pending appeal in the California Appellate Courts.^[11] The settlement was affirmed on April 21, 2008, with the court stating, "the trial court did not abuse its discretion in approving the amended class action settlement agreement, approving the notice given to class members, or determining the amount of fees."^[12] The court approved email notice and an online claims submission process.^[13] The court said:

The summary notice and long-form notice together provided all of the detail required by statute or court rule, in a highly accessible form. The fact that not all of the information was contained in a single e-mail or mailing is immaterial… Using a summary notice that directed the class member wanting more information to a Web site containing a more detailed notice, and provided hyperlinks to that Web site, was a perfectly acceptable manner of giving notice in this case… The class members conducted business with defendant over the Internet, and can be assumed to know how to navigate between the summary notice and the Web site. Using the capability of the Internet in that fashion was a sensible and efficient way of providing notice, especially compared to the alternative Vogel apparently preferred—mailing out a lengthy legalistic document that few class members would have been able to plow through.

The settlement was criticized because it paid out $2.5 million to attorneys for fees and costs, while offering only coupons to the class members.^[14][15]

The Terms of Use have since been amended with terms that indicate such a suit would not be possible in the future:^[16]

These Terms of Use shall be governed by and construed in accordance with the laws of the state of Delaware, without regard to conflicts of laws provisions. You and Netflix agree that the United States District Court for the Northern District of California and/or the California Superior Court for the County of Santa Clara shall have exclusive jurisdiction over any dispute between you and Netflix relating in any way to the Netflix service or Web site or these Terms of Use. You and Netflix expressly and irrevocably consent to personal jurisdiction and venue in these courts. The parties agree that in any such dispute or subsequent legal action, they will only assert claims in an individual (non-class, non-representative) basis, and that they will not seek or agree to serve as a named representative in a class action or seek relief on behalf of those other than themselves.

Releasing this week

The Netflix website at one time featured a list of titles, "Releasing This Week" (RTW), that enabled customers to easily view new DVDs the company planned for rental release each week.^[17] On December 21, 2007, the company removed the link to the page without notice and replaced it with a slider system showing only four previously released movies at a time. The new page, called "Popular New Releases", does not list newly released DVDs for rental.^[18] The listing of new releases is still active,^[17] although there is no menu option that links to the page.

On January 1, 2008, a Netflix employee unofficially stated on the Netflix Community Blog that customers used the RTW page to add newly released movies to the top of their queues, then complained about delays in receiving them after demand outstripped the supply of DVDs on hand. By removing the page, Netflix sought to quell complaints that these movies were not readily available. Critics, however, have suggested this was just another Netflix attempt at throttling.^[19]

Dynamic queue, subscription, and delivery methods

On April 4, 2006, Netflix filed a patent infringement lawsuit in which it demanded a jury trial in the United States District Court for the Northern District of California, alleging that Blockbuster's online DVD rental subscription program violated two patents held by Netflix. The first cause of action alleged Blockbuster's infringement of U.S. Patent No. 7,024,381 (issued April 4, 2006; only hours before the lawsuit was filed) by copying the "dynamic queue" of DVDs available for each customer, Netflix's method of using the ranked preferences in the queue to send DVDs to subscribers, and Netflix's method permitting the queue to be updated and reordered.^[20] The second cause of action alleged infringement of Patent No. 6,584,450 (issued June 24, 2003), which covers in less detail the subscription rental service as well as Netflix's methods of communication and delivery.^[21] The dispute ended a year later, on June 25, 2007, with both companies declining to disclose the terms of their legal settlement, except for a statement by Blockbuster that it would not have a major impact on its future financial performance.^[22][23] Blockbuster also said that the company planned to close 282 stores that year to shift focus to its online service. The company had already closed 290 stores in 2006.^[24]

In fall 2006, Blockbuster signed a deal with The Weinstein Company that gave it the exclusive rental rights to the studio's films beginning on January 1, 2007.^[25] This agreement forced Netflix to obtain copies from mass merchants or retailers, instead of directly from the studio.^[26] Netflix has speculated that the effect of the Blockbuster-Weinstein agreement could result in higher rental costs and/or fewer copies of the studio's movies, which would limit the number of each movie's DVDs that would be available to subscribers at any one time.^[27] As of June 2007, Netflix continues to make available Weinstein movies, including Unknown, School For Scoundrels and Harsh Times, among others. The first-sale doctrine allows Netflix and other video rental businesses to offer movies released by The Weinstein Company.

Removal of social networking feature

Beginning in 2004, Netflix subscribers could use a feature that allowed them to interact with friends who were also members. This feature was meant to tap into the growing popularity of social networking. With this feature, users could see how their friends rated a movie on that movie's page; view what DVDs their friends were renting; and allow them to leave their friends notes with film recommendations.^[28][29]

In March 2010, as part of a redesign of its movie-details pages, the Friends feature began to be phased out. Users could no longer see their friends' ratings on movie pages, and what remained of the friends section was moved to a small link at the bottom of each page. The initial announcement about the redesign on Netflix's official blog made no reference to any changes to the Friends feature.^[30] Hundreds of angry users posted negative comments, and the feedback prompted Netflix's Vice President of Product Management, Todd Yellin, to post a follow-up statement. While apologizing for poor communication about the changes, Yellin stated that the Friends feature would continue to be phased out, citing figures that only 2% of members used the feature and the company's limited resources to maintain the service.^[28][29][31] Netflix users also began using the movie-reviews section of the website to post comments protesting against the changes.^[32]

Linux support

Netflix formerly supported online streaming only on Microsoft Windows, macOS, iOS and Android, relying on Microsoft Silverlight. Partly due to digital rights management issues, despite the open-source implementation of Silverlight known as Moonlight, this has created problems for users of fully open source versions of Linux and similar operating systems.^[33] Though Google's partially proprietary Android and Chrome OS platforms are essentially based upon Linux and other free software infrastructure, Netflix did not provide any crossover support for using its proprietary components to stream any of its content upon more free systems, such as Ubuntu and Fedora, although this changed in October 2014.

On August 9, 2011, Netflix released a Google Chrome web store item for Chrome OS, Mac OS, and Windows; however, it did not initially enable Netflix streaming on Linux machines. On Linux systems running the Chrome browser, the extension simply redirects users to view Netflix.com.^[34]

In June 2014, Netflix chose to switch from Silverlight to HTML5 playback using Encrypted Media Extensions (EME), since then, the extensions were added to Microsoft's Internet Explorer on Windows 8.1^[35] and Apple's Safari on OS X Yosemite.^[35]

Since August 5, 2014, Google implemented the Encrypted Media Extensions^[36] to its Developer and Beta versions of the Chrome browser for Linux, allowing Linux users to use the service natively from the web browser.

As of October 10, 2014 multiple versions of Linux including Ubuntu^[37] and PCLinuxOS^[38] claim support for Netflix in Google Chrome version 37 or newer. The website for PCWorld also states that users of other Linux distributions such as version 17 of Linux Mint have been successfully using Netflix via Google Chrome without any special workarounds.^[39]

Third-party solutions

As of May 9, 2011, Google had initially released plans for a plugin for the Chrome browser and Chrome OS which would allow Netflix streaming, including traditional Linux users.^[40]

On November 15, 2012, patches to the Wine compatibility layer to make viewing of Netflix on Linux and similar systems were made available.^[41]

On November 18, 2012, a PPA and installation files were made publicly available making the installation and use of Netflix much easier for users of Ubuntu 12.04 and possibly other distributions.^[42]

On August 8, 2013, software repositories were made publicly available making possible the usage of the Windows Silverlight plugin in Linux-native web browsers using Wine.^[43][44] Previous Linux Netflix support required running the entire Firefox web browser through the Wine compatibility layer.^[42]

2016 lawsuits

Price Increase lawsuit

A lawsuit was filed agented Netflix in 2016 by George Keritsis. The suit alleged that Netflix broke the contract it made with millions of customers who have “grandfathered” subscription plans with price guarantees.^[45]

“I can tell you my client is upset because Netflix has acknowledged he had a guaranteed or grandfathered account but nevertheless insisted on raising his price”

— Tom Shapiro who is representing Keritsis, Variety

Sued by Fox

Fox sued Netflix because they have been “illegally” been taking their employees. Fox claims that Netflix knew all about its hiring's recently. Marco Waltenberg and Tara Flynn left Fox for Netflix .

Accessibility

On March 11, 2011, Don Cullen filed a national class action lawsuit^[46] against Netflix alleging that the service failed to closed caption its streaming video library and had misled deaf and hard of hearing customers. In June 2011, the National Association of the Deaf represented by the Disability Rights Education and Defense Fund (DREDF) filed a lawsuit against Netflix for not providing closed captioning on all of its movies on the "Watch Instantly" service. The group claims Netflix is violating the Americans with Disabilities Act by not providing equal access on entertainment.^[47] On November 11, 2011, the court denied Netflix a motion to dismiss the case.^[48] In 2015, the Ninth Circuit Federal Court of Appeals dismissed the suit, saying the Americans with Disabilities Act applies only to physical spaces, not online.^[49]

In March 2012, Netflix increased the number of programs that are closed captioned. Almost all Netflix-ready devices in distribution today (including AppleTV, BD players, the Roku set-top box, and all the game consoles, phone apps, tablet apps, and TVs) are capable of rendering captions.^[50]

In July 2012, Netflix formed an experimental project to crowdsource the closed-captioning effort using the Amara (formerly Universal Subtitles) platform.^[51] However, this proved problematic in the face of claims that crowdsourced subtitles, regardless of whether they are transcriptions or translations, are derivative works which infringe copyright if created or distributed without consent from the film's copyright owner.^[52] Amara operates under DMCA safe-harbor provisions which indemnify it from secondary copyright infringement lawsuits over user-uploaded content, and presumably Netflix would not publish any subtitles produced by this effort without authorization. Netflix was careful to say it is not committed to using any subtitles produced by the crowdsourcing project.^[51]

In October 2012, Netflix was found to be offering the television series Andromeda to customers in Finland with unauthorized subtitles from the fansub scene.^[53] Such subtitles, and motion pictures incorporating them, have long been traded online, resulting in cease and desist notices, takedowns, and copyright infringement lawsuits against traders, website operators, and search engines; even criminal prosecution happened in one Norwegian case involving the distribution of fan-created subtitles alone.^[54] When confronted, Netflix apologized and promised to remove the unauthorized translations but did not explain how the content came to be offered in the first place, or whether other potentially copyright-infringing subtitles exist in the company's repertoire.^[53]

On January 20, 2014, Jon Christian published an article in The Week, titled "How Netflix alienated and insulted its deaf subscribers: The streaming video giant still can't manage to competently produce closed captions", which catalogues Netflix's various technical and legal issues regarding closed captioning, including the poor quality of the subtitles that are provided. For example, he states: "But for all the service's strengths, one aspect is still decidedly twentieth century: The bizarrely low standards for Netflix's closed captions, which continue to alienate subscribers who are deaf, hard of hearing, or simply have difficulty understanding dialogue." The article was updated the following day to publish Netflix's response: "Update: The day after this article was published, a representative from Netflix contacted the author of this piece with an additional comment: 'While we don't have the rights to make edits to subs/captions we do, in fact, request redelivery of subtitles or captions when we discover errors. The titles in your piece are now under investigation.'"^[55]

Following the launch of Daredevil in 2015, disability rights advocates pointed out that Netflix had not yet included content with audio descriptions of visual content for those who are blind or visually impaired. One critic considered it "terribly laughable PR" for Netflix to not include audio descriptions on a series that focuses on a character who himself is blind. On April 14, 2015, director of content operations Tracy Wright announced that Netflix would begin to work with studios to add audio descriptions to its original content.^[56][57]

Circumvention of geoblocking

More than 30 million Netflix subscribers use the service via a proxy server or virtual private network (VPN); doing so can make a user appear to be located in a country other than the one they are actually in, thus allowing them to use the service to access content that Netflix cannot offer in their region, due to geographical licensing restrictions. It is unclear whether or not accessing geo-blocked content via VPN violates local copyright laws, but content providers and other broadcasters have asserted that it is illegal because it infringes local rights to content that may have been sold to a competitor.^{[58][59][60][61]} GlobalWebIndex showed about 20 million of such VPN users came from China alone.^[62][63] As of November 2013, Canadian Netflix offered 3,600 titles compared to the U.S. service which had more than 10,000 which results in Canadians using VPNs so they can access the larger U.S. content selection.^[64]

In a leaked e-mail revealed by the Sony Pictures Entertainment hack in 2014, Sony Pictures Television's president of international distribution, Keith LeGoy, described VPN usage of Netflix as being "semi-sanctioned" piracy, and he criticized the company for not taking further steps to detect these users and restrict their access to content Netflix had not licensed for their region.^[59][63]

In response, on January 14, 2016, Netflix announced its intent to strengthen measures to restrict access to unlicensed material, by viewers using VPNs or proxies.^[65]

References