Blockbuster Retaliates Against Netflix’s Patent Claims

Mercury News:

Escalating a bitter legal battle, Blockbuster Inc. on Tuesday accused Netflix Inc. of manipulating the U.S. patent system in a devious effort to monopolize the booming market for online DVD rentals.

The antitrust allegations represent Blockbuster’s counterpunch to patent infringement claims Netflix filed two months ago.

The wrangling eventually could affect the rapidly growing audience that’s migrating to the Internet to rent DVDs through the mail.

About 6.2 million people currently subscribe to the online services of Netflix and Blockbuster, which both charge a flat monthly fee to rent DVDs for an unlimited time. Most subscribers pay $17.99 per month to check out up to three DVDs at a time.

Los Gatos, Calif.-based Netflix pioneered the concept in 1999 and ended March as the industry leader with 4.9 million subscribers.

Blockbuster launched its own online service in 2004 after losing hordes of customers who formerly rented movies in traditional stores. The Dallas-based company began the spring with about 1.3 million online subscribers.

Netflix obtained the first patent on its service in 2003, but didn’t seek a court order to enforce its claims against Blockbuster until it received an even broader patent in April.

In its countersuit filed in U.S. District Court in San Francisco, Blockbuster framed Netflix’s patent claims as a “sham” aimed at locking out competitors that will help protect consumers from price gouging.

The suit alleges that Netflix CEO Reed Hastings even described its first patent as a joke in a January 2005 meeting with Blockbuster’s chief lawyer at the time, Edward Stead.

“Netflix is trying to monopolize this space on the Internet and restrain competition to the detriment of Blockbuster and the public,” said Marshall Grossman, a Los Angeles attorney representing Blockbuster.