Netflix Judge Changes Mind On Lawyer Fees

SAN FRANCISCO - A judge considering a proposed settlement of a class action lawsuit against a popular DVD rental service, Netflix, retreated yesterday from his threat to sharply cut the fees awarded to lawyers in the case.

Judge Thomas Mellon Jr. signaled the change after the company said it expects the number of customers seeking to temporarily upgrade their subscriptions under the settlement to jump to 655,000, more than double the tally of those currently signed up.

Under the settlement, current customers of Netflix would be eligible to get an extra movie for a month, while former customers would receive a month's free service, including up to three movies at a time.

At a hearing last week, Judge Mellon expressed concern that the benefit to former subscribers seemed richer than that for present customers. While Netflix had agreed to pay up to $2.5 million in fees to plaintiffs' lawyers, the judge said he planned to award much less. He asked Netflix to consider using the money cut from the fee award to improve the deal for current customers.

During an hour-long conference with the judge yesterday, an attorney for the company, Keith Eggleton, said the firm determined that even adding one extra DVD for existing customers would be too costly. "It's just very hard," he said.

Mr. Eggleton said changes made to the settlement after the Federal Trade Commission objected to an earlier version substantially increased the costs to the company. "Netflix already, if you will, took one for the team," he said.

In a filing with the Securities and Exchange Commission earlier this month, Netflix reported it took a charge of $8.9 million last year to cover legal fees and the free subscriptions for former customers. It said the cost of giving extra DVDs to existing customers would be determined later.

Judge Mellon said the possible increase in interest by class members might persuade him to award something close to the $2.5 million requested by the lawyers who brought the case and other attorneys involved in crafting the revised settlement. He said he would make at least some of the fees dependent on how many consumers register for the offer.

"The participation number is going into my calculation. If it's going to be double, I want to know that," the judge said. "If your projections are right, maybe it gets to where they want to be," he said, referring to the fee award sought by the plaintiffs' lawyers.

The lawsuit alleges that Netflix deceived customers by failing to disclose its practice of giving the most frequent users of the DVDs-by-mail service a lower priority in obtaining new films. The company has denied any wrongdoing, but amended its terms of service last year to disclose the priority system, which critics call "throttling."

Lawyers involved said they expect appeals to delay the delivery of the free services at least until next year. Details on registering for the offer are at www.netflixsettlement.com.