Charter Agrees to $174M Deal to Settle Lawsuit Alleging Netflix Throttling

The agreement, called the largest-ever payout to consumers by an ISP in U.S. history, includes refunds as well as months of free HBO or Showtime for Charter's New York customers.

Charter Communications has agreed to refund $62.5 million to 700,000 customers and provide streaming services and premium channels at no charge to 2.2 million active Spectrum customers to settle a consumer fraud lawsuit. On Tuesday, the office of the New York Attorney General announced the deal collectively valued at $174 million, which it says represents the largest-ever payout to consumers by an internet service provider (ISP) in U.S. history.

The NY AG originally brought its complaint in February 2017. Charter's Spectrum-Time Warner Cable service was alleged to have promised internet speeds it knew it couldn't deliver and to have misled subscribers by promising reliable access to Netflix, online content and online games. According to the NY AG, subscribers were guaranteed seamless access to their chosen internet content while Charter engaged in hardball tactics with Netflix and other third-party content providers over interconnection payments.

After the NY AG filed the case, it moved to a federal court with Charter contending that net neutrality regulations preempted state claims made over promised Internet speed and access to content. The NY AG successfully got the case remanded back to New York state court after a judge concluded that the Federal Communications Act didn't provide the exclusive remedy for the type of consumer protection and false advertising claims asserted in the case.

The case then proceeded amid the backdrop of the FCC repealing Obama-era net neutrality rules. As the federal government pulled back on regulating ISPs as a utility that couldn't block or throttle content, the importance of this lawsuit increased. Would federal preemption stop efforts by state officials to attack deceptive claims about the reliability and speed of Internet service and consistent access to popular content apps?

In February, a New York judge rejected Charter's motion to dismiss, and while the FCC may have intended some federal preemption, the judge pointed to how the FCC had said that U.S. states "continue to play their vital role in protecting consumers from fraud."

Since then, the parties have been engaged in a brutal discovery process with Charter even contending that in bringing the lawsuit, the NY AG had conspired with a "cabal" including the individual who coined the net neutrality term. Charter explored and objected to the alleged delegation of a law enforcement investigation to third parties.

Now, though, the NY AG is touting a landmark settlement.

The refunds amount to $75 to $150 per customer to those who leased inadequate modems or inadequate WiFi routers or subscribed to a Time Warner Cable legacy speed plan of 100 Mbps or higher.

Additionally, Charter subscribers currently receiving internet and cable television from the company will get a choice of either three free months of HBO or six free months of Showtime.

Charter also has agreed to make investments to address problems identified in the complaint and enhance its internet service. The company must also substantiate internet speeds and regulate the way it advertises its service

"This settlement should serve as a wakeup call to any company serving New York consumers: fulfill your promises, or pay the price,” Attorney General Barbara D. Underwood said in a press release announcing the settlement. “Not only is this the largest-ever consumer payout by an internet service provider, returning tens of millions of dollars to New Yorkers who were ripped off and providing additional streaming and premium channels as restitution — but it also sets a new standard for how internet providers should fairly market their services.”