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Netflix Sues to Unplug Rival Blockbuster Online

4 Apr, 2006 By: Erik Gruenwedel



Online rental pioneer Netflix April 4 filed a patent-infringement lawsuit seeking a jury trial to shutter rival Blockbuster Online.

The suit, filed in the U.S. District Court Northern District of California in San Francisco, claims Dallas-based Blockbuster Inc.'s 19-month-old Web rental service violated two Netflix patents, “Approach for renting items to customers,” (US 7,024,381 B1) and “Method and apparatus for renting items” (US 6,584,450 B1).

The suit seeks unspecified financial damages.

Los Gatos, Calif.-based Netflix received the first patent (450) June 24, 2003, and the latest patent (381) on April 4 — the same day as the lawsuit.

Specifically, Netflix's latest patent covers the online subscription program that allows customers to keep rental DVDs indefinitely without incurring late fees. It also allows subscribers to establish personal rental priority lists and obtain new titles upon return of previous rental titles without incurring additional fees.

The earlier patent is a computer-implemented program that allows Netflix subscribers to select a predetermined number of titles they are allowed to rent out at one time.

“We are protecting our rights as inventors by filing this lawsuit,” said a Netflix spokesperson.

He said the company hadn't specified financial damages, but would seek “a remedy that fully addresses Blockbuster's deliberate and woeful infringement.”

Blockbuster, in a regulatory filing, said Netflix's claims are without merit and that it intends to defend itself vigorously.

“We believe this lawsuit is an attempt by Netflix to stifle competition and, as a result, reduce consumer choice,” said Shane Evangelist, SVP and GM for Blockbuster Online.

Evangelist said he found it noteworthy Netflix appeared to have singled out Blockbuster and no other online competitor for litigation.

He said Netflix waited nearly three years after receiving its first patent and 19 months since the launch of Blockbuster Online before filing the action.

“The timing of this lawsuit appears to confirm that Blockbuster Online has emerged as a real competitive force in the online rental industry,” Evangelist said. “Apparently, Netflix would prefer to take us on in the courts rather than facing us in the marketplace where the consumer is the judge.”

Retail analyst Dennis McAlpine said unless the suit is thrown out quickly, the case could drag on for years. He doesn't think the strength of Netflix's original patent was particularly enforceable.

“At the very least, they make Blockbuster divert what few resources it has to defending this,” McAlpine said. “And if they win, they put Blockbuster Online out of business.”

Jessica Wolf contributed to this report.

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