Blockbuster Files Countersuit Against Netflix

by Glen Shapiro, LawAndTax-News.com, New York

15 June 2006

In antitrust counterclaims filed on Tuesday in San Francisco federal court, Blockbuster Inc. alleged that the lawsuit filed against its online service by Netflix, Inc. is based on unenforceable patents that Netflix obtained through deceptive practices, in an attempt to monopolize the online rental business.

In April of this year, Netflix announced that it had filed suit against Blockbuster, alleging that the rival firm had infringed on two patents covering the process of online DVD rental.

Netflix argued that Blockbuster had been aware of patents owned by Netflix, but had chosen to ignore them when developing its own, similar DVD rental service.

The first patent, granted in 2003, covers the method of selecting and receiving a number of DVD titles, and returning them in order to receive more from a personally-selected list.

The second, which was granted earlier this year, covers the company's 'no late fees' approach, in addition to the ability "to obtain new DVDs without incurring additional charges and to prioritize and reprioritize their own personal dynamic queue".

Netflix is seeking closure of Blockbuster's online DVD rental service, and unspecified damages.

Speaking on Tuesday with regard to the countersuit, Marshall B. Grossman, of Alschuler Grossman, Stein & Kahan in Los Angeles, the firm representing Blockbuster in the litigation argued that:

"There is nothing original about renting movies or subscription rental programs. Both were widely practiced long before any purported invention by
Netflix. For Netflix to claim exclusive rights over subscription movie rentals is like a fast-food restaurant trying to patent selling hamburgers through a drive-through window."

"As for Netflix's so-called 'dynamic' queue, we are convinced it is not legally patentable. We think it is obvious that if you are going to provide subscription rentals over the Internet, you have to let your customers list the items they want to receive and enable them to periodically update their lists."

The claims filed by Blockbuster against Netflix also allege that Netflix failed to inform the Patent Office of previous patents and previous business methods of other companies, despite the legal duty to make these disclosures.

Grossman concluded:

"The court has the final say on whether a patent is valid and whether a company was honest in pursuing its patent. We state in our counterclaims that Netflix's conduct at the Patent Office was deliberately deceptive and that Netflix's goal all along has been to ultimately monopolize the online rental business. A monopoly in this business, as in any other consumer oriented area, could result in less choice and higher prices for the consumer."

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