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Netflix Sues Blockbuster To Shut Down Movie-Rental Site

Posted by iTech - 2006-04-07

Online DVD-rental firm Netflix has filed a patent-infringement suit against major rival Blockbuster, seeking to shut down the competitor's online movie-rental site. In the suit, filed in California, Netflix claimed that Blockbuster is violating two Netflix patents that are related to how its subscribers pay monthly fees and how it tracks what movies it has shipped.
The monthly-fee patent was filed in 2003, according to court documents, and covers the way in which customers can choose films and pay for them on the basis of how many movies they have checked out at any given time.

The second patent was issued on the same day that Netflix filed suit against Blockbuster, indicating to legal observers that Netflix might have been waiting to get approval on the patent before asking Blockbuster to yank its rental site.

That patent details a method for subscription-based online rentals that let subscribers keep the DVDs they rent for as long as they like without incurring extra fees. It also allows subscribers to "prioritize and reprioritize their own personal dynamic queue," the lawsuit noted.

Turf War

Blockbuster, which is the leading movie-rental chain in the U.S., launched its online service in August 2004. The rental giant has put more than $300 million into the service so far, with significant funds going toward development and marketing.

Netflix alleges that when the company created its rental site, it was aware of Netflix's patent award as well as the patent that had been filed and was awaiting approval.

The first-to-market firm is seeking a jury trial as well as damages. It is claiming that it deserves to be compensated and have Blockbuster Online shut down because Netflix put money and energy into creating a unique service, according to the site's attorneys.

Whether Netflix will succeed in trouncing its rival remains to be seen, but some legal observers have noted that it would have been a stronger case for Netflix to file suit before Blockbuster Online launched. Allowing the site to go live and not taking the company to court for nearly two years could indicate implied consent, some believe.

See You in Court

If Netflix is successful in its quest to use business-process patents to shut down a competitor, it is possible that other dot-coms will follow suit. Already, there have been lawsuits related to certain online inventions like digital shopping carts, but suits related to business processes have not been as prevalent.

However, given the growing popularity of such patents, that might soon change.

"These type of patents can cover a wide variety of processes, like ordering options or how information is structured on a site," said Michael Lasky, patent and trademark attorney at Minneapolis-based law firm Altera Law Group.

"They've been around for a while, and lost favor during the dot-com days, but there's been a complete change in mindset since then," he noted. "Companies will use them more often for protection now."

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