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Blockbuster, Netflix Settle Patent Litigation

27 Jun, 2007 By: Erik Gruenwedel

Blockbuster Inc. and online rental pioneer and rival Netflix Inc. said they have reached a settlement to their 14-month-old patent lawsuit.

Terms of the settlement were not disclosed and both parties agreed to dismiss all claims in the litigation, according to a regulatory filing.

Blockbuster said the settlement would have no material effect on its future financial performance.

In April 2006, Netflix filed a patent-infringement suit against the Dallas-based video rental giant seeking to shutter Blockbuster Online. Blockbuster in June countered, alleging that Netflix had attempted “to monopolize the DVD rental market through fraudulent patenting and sham litigation.”

Separately, Blockbuster said it would seek to amend terms of its credit facility with its banks and lenders.

Blockbuster would amend required consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) levels to range from $140 million in the four-quarter period ending July 1 to $165 million for the same period ending Jan. 6, 2008.

The video rental giant would also amend consolidated EBITDA levels from $180 million for the four-quarter period ending April 6, 2008 to $250 million for the period ending Jan. 4, 2009.

The company said the amendments were necessary to cover fiscal investments in its Total Access online rental, in-store rental service. Blockbuster expects all amendments to be consummated by July 2007.

Finally, Blockbuster said it would offer all DVD rentals in its children's section at participating stores for $1.99 per day through the Labor Day weekend (Sept. 3).

Blockbuster ended the second quarter (ended June 29) with more than $800 million in debt.

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