In a significant legal victory for Netflix (NFLX.O), U.S. District Judge Jon Tigar dismissed a shareholder lawsuit on Tuesday that accused the streaming giant of misleading investors about the impact of account sharing on subscriber growth. The proposed class action lawsuit, led by Texas-based trustee Fiyyaz Pirani, was dismissed with prejudice, meaning the plaintiff cannot refile the case.
The lawsuit emerged following Netflix’s April 2022 announcement that it had lost 200,000 subscribers in the previous quarter — its first decline in over a decade. The company also projected it could lose an additional 2 million subscribers in the next three months. Netflix attributed the drop to a combination of factors, including account sharing, increased competition in the streaming market, and the suspension of services in Russia after the invasion of Ukraine. The news led to a sharp 35% plunge in Netflix’s stock price, resulting in a $54 billion loss in market value.
At the center of the lawsuit was the claim that Netflix downplayed the negative effects of account sharing — where paying subscribers share their login credentials with non-paying users in other households. The plaintiffs argued that Netflix failed to adequately disclose the potential impact this practice could have on its ability to retain and grow its subscriber base.
However, Judge Tigar ruled that Netflix’s statements regarding its U.S. and Canadian subscriber growth — claiming it had “roughly 60% penetration” in these markets and “a lot of headroom” for future growth — were not false or misleading. The judge noted that these claims referred specifically to paid subscribers and did not guarantee that subscriber growth would continue at the same pace.
The ruling also found no evidence to support the claim that Netflix intentionally concealed any information that account sharing would significantly harm subscriber growth. Judge Tigar concluded that the company’s investigation into account sharing showed it was “one potential threat to growth among many,” rather than a decisive factor in its subscriber losses.
This dismissal follows a previous ruling in January 2023, where Judge Tigar had already rejected an earlier version of the lawsuit. The dismissal on Tuesday, being with prejudice, means that Pirani and the Imperium Irrevocable Trust cannot amend or refile the complaint.
In response to the ruling, Netflix and its legal team did not immediately issue any public statements, nor did the plaintiff’s lawyers respond to requests for comment.
This case is Pirani v. Netflix Inc. et al, U.S. District Court, Northern District of California, No. 22-02672.
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