TiVo Dismisses Class Action Lawsuit Over Gift Certificate Policy

| About: TiVo Inc. (TIVO)

I was thumbing through TiVo’s (NASDAQ:TIVO) recent quarterly report yesterday, and came across an interesting TiVo tidbit that management quietly neglected to mention on their last conference call. Apparently, this November TiVo entered into a settlement agreement over a class action lawsuit that was filed late last year, relating to expirations on their gift certificates.

Normally, I’m a pretty big TiVo proponent, but this was one TiVo case, where I really felt like they were in wrong. Every state has a different set of rules, but in the Golden State, you’re not allowed to put an expiration date on a gift certificate, except in very rare instances. This is largely because gift certificates are typically purchased with cash and it’s not fair for a consumer to lose out on a service just because they didn’t move quickly enough or because they received the gift on a later date. When it comes to rebates, coupons and other discounts anything goes, but once a consumer has purchased a gift certificate, it’s good for life as far as California is concerned.

This creates problems of course, particularly if companies want to wipe off liabilities off their books or if a gift certificate is for a service you no longer provide, like lifetime subscriptions.

While I can’t remember all of the details that led to this case, I do remember that from the start of it, TiVo refused to recognize any wrong doing. When TiVo was challenged over the the practices, they did modified the terms and conditions on the agreement, but it wasn’t enough to stop the class action and in December 2005, they faced a class action lawsuit over the policy.

In the end, it looks like they were able to come to an agreement, but TiVo will end up paying approximately $120,000 to settle the charges of wrong doing and to dismiss the class action before it turns into a bigger headache. From their 10Q filing,

“Consumer Litigation . On December 22, 2005, a consumer class action lawsuit against TiVo Inc. was filed in the Superior Court of the State of California, County of San Francisco. This action, which is captioned Nolz, et al. v. TiVo , was brought on behalf of a purported class of purchasers of the Company’s gift subscriptions which were allegedly sold to consumers in violation of a California law that restricts the sale of gift certificates in California containing an expiration date. In November 2006, the Company entered into a settlement agreement with the plaintiffs which is expected to result in dismissal of the action in the Company’s first quarter of fiscal year 2008. The Company has accrued $120,000 in settlement costs, which is located on the balance sheet under accrued liabilities.”

I don’t fully understand why a lawsuit ever had to proceed this far to begin with, but I am happy that TiVo was able to bring resolution to this matter. Consumers have enough to worry about dealing with the cable and satellite companies, they don’t need TiVo trying any shenanigans too. The gift certificate laws are put into place to protect consumers from all of the fine print that accompanies the various rebate schemes that we have to deal with and if TiVo wants to sell gift cards in California, they need to play by the same rules as every other business in the state.

Disclosure: Author is long TIVO.

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