It isn’t illegal to keep secrets. Sometimes, you really have to. Other times, it will get you in trouble. Case in point: the class action against NetFlix.
In late 2003, a Netflix customer named Manuel Villanueva started a website where he documented problems he had experienced with Netflix, a company that provides DVD rentals by mail. He noted that Netflix had violated its agreement to provide him with “unlimited rentals,” by engaging in a practice known as “throttling.”
As a result of this practice, Villanueva says, he was treated worse than other renters who paid the very same price he did — $17.99 – for what was supposed to be, in theory, the same service. In addition, he says, Netflix’s advertising was misleading: Rentals weren’t really unlimited given that Netflix selectively doled out its DVDs.
Now, to be clear, discriminating among customers is usually legal… as long as it isn’t based on race or some other protected status, or in a sensitive type of business like lodging. That’s how airlines get away with charging a walk-up businessman $1,000 for the same seat that would cost an advance purchaser $200. The thing is, just about everyone who buys airplane tickets knows this is the case. From the same article:
The problem [was] that Netflix did not disclose the throttling to consumers up front – and thus arguably misled them as to the service they were purchasing, breaching its agreement with them, as stated in its Terms and Conditions. For this reason, the plaintiff class had a valid claim.
…The plaintiffs in the lawsuit saw equal treatment as a right, implicit in the company’s promise of “unlimited rentals.” And they are correct about this – if a company does not disclose that there are certain limits to the “unlimited” feature, this seems clearly misleading.
Once a company has disclosed its business practices, customers can choose to say or to shop elsewhere. Many Netflix customers retain their accounts – even after throttling has been publicized. Why? They think the service is still a good deal.
One of the few good experiences I had in my law school Contracts class was a simple negotiation simulation. Client A wanted $10,000; Client B didn’t want to pay more than $5,000. We had to pair up and reach a compromise. Once we had all done our separate negotiations, we compared results… and the people who got the most for their clients turned out to be the ones who were most open about what their clients wanted. (As opposed to my partner, who wanted to offer the other side nothing to start out with.)
So the bottom line is, don’t keep customer policies secret. The policies that you “have to” keep secret are often going to get you in trouble once they become public. And at any rate, a major part of keeping people happy is making sure that they don’t feel like they’re getting screwed behind closed doors. Lesson to NetFlix.