Blockbuster Mum On Netflix Patent Infringement Suit

Some industry observers immediately questioned why Netflix waited so long to sue Blockbuster. But a Netflix spokesman said the suit was filed now because it took until Tues. for the online DVD rental company to be issued one of the 2 related patents in question. Netflix accused Blockbuster of infringing on U.S. patent 7,024,381 issued Tues. and 6,584,450 issued June 24, 2003, which each pertain to Netflix’s system of allowing customers to order DVDs online. Both patents were issued to Netflix CEO Reed Hastings and 2 other inventors on behalf of Netflix, which was listed as “assignee.” The latter patent was filed by Netflix April 28, 2000, and patent 7,024,381 -- which a Netflix spokesman referred to as a “continuation” of the earlier one -- followed May 14, 2003.

Patent 7,024,381 is described as an “approach for renting items to customers” while 6,584,450 is described as a “method and apparatus for renting items,” according to the U.S. Patent & Trademark Office. But the detailed descriptions of each patent are similar, each citing the system’s “Max Out” and “Max Turns” approaches. Max Out was described in both as an approach that “allows up to a specified number of items to be rented simultaneously to customers” while Max Turns was described as an approach that “allows up to a specified number of item exchanges to occur during a specified period of time.”

Netflix accused Blockbuster in the suit of infringing on one or more of the claims in the “381” patent “by copying Netflix’s patented business method, including but not limited to copying Netflix’s dynamic queue; copying Netflix’s method of sending DVDs to subscribers based on ranked order of titles in their queue; and copying Netflix’s method of allowing subscribers to update and reorder their queue among other acts of infringement.” It accused Blockbuster’s online rental service of also infringing on one or more claims in the “450” patent. Netflix claimed Blockbuster “also actively induced and/or contributed to others’ infringement” of the 2 patents. It said Blockbuster “has had actual and/or constructive knowledge of the ‘450’ patent and Blockbuster’s infringement of [it] has been and is willful and deliberate.” The online company claimed it “has suffered and will continue to suffer irreparable injury unless Blockbuster’s infringement” of the patent is enjoined by the court.

Netflix requested a judgment that Blockbuster had infringed on the patents, a judgment that the infringement was “willful and deliberate,” a preliminary and/or permanent injunction to stop Blockbuster and others concerting with Blockbuster “from any further acts of infringement,” unspecified damages, a “trebling” of all damages awarded to it, interest on the damages, and legal expenses in recognition of it being an “exceptional” case.

An injunction would apparently force Blockbuster to shut down its Blockbuster.com online DVD rental service, launched nearly 2 years ago. Blockbuster’s online service significantly trails Netflix in subscribers. It was believed that Netflix had 4.2 million subscribers at the end of 2005 vs. only 1.2 million for Blockbuster.com. Blockbuster, however, set an aggressive goal for online growth, saying it wanted to boost membership to 2 million by the end of 2006. Netflix shares were up 4.89% at $28.75 in late afternoon trading Wed. Blockbuster shares were up 0.79% at $3.83 after closing down 2.1% at $3.80 Tues.