Texas Sues Netflix Seeking $10,000 Per Violation for Deceptive Data Use

Texas Attorney General Ken Paxton has filed a sweeping lawsuit against Netflix Inc., alleging the streaming giant engaged in a years-long "bait-and-switch" scheme that violates the state's Deceptive Trade Practices Act. The 59-page filing accuses Netflix of building a massive surveillance apparatus to track users, including children, after luring them in with promises of an ad-free experience free from the data harvesting common in Big Tech.

"Netflix is not the ad-free and kid-friendly platform it claims to be," Paxton said in a statement. "Instead, it has misled consumers while exploiting their private data to make billions." The lawsuit, filed in Collin County, seeks a jury trial, a permanent injunction to stop the alleged data collection, and civil penalties of up to $10,000 per violation.

The core of the complaint contrasts Netflix’s current business model with past statements from executives like former CEO Reed Hastings, who in 2020 claimed, "We don’t collect anything." The lawsuit argues that behind the scenes, Netflix was constructing "surveillance machinery" that now collects approximately 5 petabytes of user-behavior logs daily. The suit alleges this data, including viewing habits and application usage from both adult and child profiles, is shared with data brokers like Experian and integrated with ad-tech platforms including Google’s Display & Video 360 and The Trade Desk.

This legal action places Netflix among other tech giants facing scrutiny over data privacy and platform design. The lawsuit highlights features engineered to be "addictive," such as the autoplay function, a tool also used by competitors like Disney+, Hulu, and YouTube. The state of Texas is arguing that Netflix broke a bargain with consumers who "paid monthly to escape tracking" only to be subjected to the very data-collection system they sought to avoid.

The ‘Bait-and-Switch’ Allegation

The lawsuit hinges on Netflix's pivot to an ad-supported subscription tier in late 2022. For years, the company differentiated itself from competitors by eschewing advertising and the data collection it requires. The Texas AG's office argues this was a deceptive marketing strategy. "Netflix sold subscriptions to its programming as an escape from Big Tech surveillance," the lawsuit states. "Texans trusted that bargain. Netflix broke it."

The complaint alleges that every user interaction on the platform—from viewing habits and preferences to device information and household networks—became a data point to be monetized. This shift, the suit claims, turned Netflix into the very entity it promised its subscribers it would never become, converting user data "into lucrative intelligence for global advertising juggernauts."

In response, a Netflix spokesperson stated the lawsuit "lacks merit and is based on inaccurate and distorted information," adding that the company "takes our members’ privacy seriously and complies with privacy and data-protection laws everywhere we operate."

A Widening Regulatory Dragnet

Paxton's lawsuit against Netflix is part of a broader trend of regulatory action against major technology and media platforms. It follows a recent verdict where a Los Angeles jury found Meta and Google’s YouTube negligent in the design of their platforms and comes as Paxton himself launches investigations into music streaming services like Spotify and Apple Music for other alleged deceptive practices.

The financial implications for Netflix could be substantial. With Texas contributing a reported $1.5 billion in annual revenue to the company, the potential for penalties of up to $10,000 for each violation of the Deceptive Trade Practices Act could accumulate rapidly depending on how "violation" is defined. The lawsuit seeks to force Netflix to disable the autoplay feature by default on children's profiles and obtain clear consent for data collection, changes that could impact user engagement and, consequently, revenue.

This article is for informational purposes only and does not constitute investment advice.