Monday, December 12, 2005

Netflix 2: Credits Rolling Again

Hit your rewind button back to September 5, 2005 if you please. That’s when the Nugget reported that Judge Fern M. Smith (N.D. Cal.), in one of her last official acts before her retirement, threw out the Netflix action. But Plaintiffs pushed on, amending their complaint and trying again. This time, it was up to Judge William Alsup (N.D. Cal.) (who has been referred to at least once as corporate executives’ “worst nightmare”) to evaluate whether the newly minted complaint could overcome Defendants’ motion to dismiss, and well, let’s just say unlike The Chronicles of Narnia, this movie is not likely to have a sequel.

Basically, Plaintiffs claimed that in describing their churn rate, Defendants "cleverly redefined commonly-understood financial measures” and “stated and discussed those measures in a manner designed to suggest that their definitions accorded with the commonly-understood definitions." Judge Alsup rejected this theory, holding that “the critical key to understanding defendants' methodology was adequately and repeatedly disclosed. They did not need to repeat this information in telephone calls with analysts because the information already was available in press releases and filings with the SEC.” In addition Netflix CEO Reed Hastings’ “failure to correct an interviewer's false statement is not a false statement in itself” as he “had no duty to police the media.” So “this time the dismissal is without leave to amend.”

You can read In re Netflix, issued November 18, 2005, at 2005 U.S. Dist. LEXIS 30992.

Nugget: “The use of a unique measure in and of itself does not render their reports false and misleading.”

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