Netflix decided Friday to suspend a second contest to improve its movie recommendation system after the FTC expressed concerns over how the contest might impact subscribers’ privacy. The movie-by-mail provider also settled a lawsuit filed by KamberLaw over the same contest.

The contest was a follow-up to a 2006 competition that challenged participants to use various bits of customer data to develop a more accurate automated method for recommending movies. A New Hampshire woman filed suit over the first contest in December 2009, alleging in the complaint that people could figure out she was a lesbian based on personal information, such as movie ratings, released in the contest. The ratings were assigned numbers associated with the subscriber who entered them, which Netflix claimed provided anonymity. The plaintiff in Doe v. Netflix, Inc. claimed that despite Netflix’s efforts at confidentiality, it could still be possible for her identity to become public. That case is pending.

In a statement, Netflix’s Chief Product Officer Neil Hunt said the company had productive discussions about privacy with the FTC and attorneys from KamberLaw regarding the second contest.

“The resolution to both matters involves certain parameters for how we use Netflix data in any future research programs,” Netflix Chief Product Officer Neil Hunt wrote on the company’s blog. He did elaborate on those parameters.

For the full statement, visit the Netflix Blog: Netflix Contest Update