Netflix Sues Blockbuster for Patent Infringement

StrongGlad writes "Is the concept of renting movies over the Internet an original idea that deserves patent protection? Netflix claims it is, and is suing Blockbuster for patent infringement, alleging they are copying its seven-year-old online movie-rental business method. Netflix argues that it has patents covering its many online features, including allowing subscribers to keep DVDs for as long as they want without incurring a late fee, obtaining new DVDs upon return of those already watched, and prioritizing their own personal movie list. Blockbuster, for its part, has counterclaimed, insisting that Netflix is trying to monopolize the online movie-rental industry and stifle competition. Blockbuster also alleges that Netflix obtained its patents fraudulently by failing to disclose pertinent information to the U.S. Patent and Trademark Office, and further contends there is nothing original about renting videos online in the first place."

Comments

Business models?

[daeg]

Since when are business models subject to patent rights? Products, yes, but business models?

Re:Business models?

[kimvette]

Ever since it has become possible to buy a judge and/or jury.

Re:Business models?

[Apocalypse111]

[to ask] Microsoft. They might [to know]. They seem [to patent] everything anyways.

Re:Business models?

[jimfinity]

i would agree with you if i didn't just hate blockbuster so dang much.

four bucks to rent a movie? screw you, blockbuster.

Re:Business models?

[daeg]

Four?! Where the hell are you living? It's close to $7 here...

Re:Business models?

[jonwil]

Do a patent search for "amazon.com" "1-click"...

Re:Business models?

[RovingSlug]

This is getting so out of hand. People think technology and the internet make these things special somehow. For instance

• Imagine if McDonalds had patented drive through food.

We'd all agree that's stupid, right? Why do people think business models on the internet is any different?

Re:Business models?

[daeg]

USPTO is funded almost entirely by patent fees and is run under the Department of Commerce. The DoC is run from a cabinet position, thus placing it under the Executive Branch. The USPTO is run by an appointee of the President.

Re:Business models?

[truthsearch]

http://en.wikipedia.org/wiki/Business_method_paten t

Re:Business models?

[Josh Hiles]

This really is all the court's fault. It was some case called Diamond v. Chakrabarty which defined a patentable item as, "anything under the sun that is made by man." This has opened the door (far wider anyway than it was) to all kinds of ridiculous lawsuits. Witness, a company called Knight and Associates attempting to claim that it's perfectly legal to file patents on plots (for books, movies, etc) and attempting to file said plot. It's just an attempt to set up a monopoly of ideas and eliminate all competition. Truly we live in a wonderfully capitalist society. Our business owners believe in free markets completely and totally, until someone bigger and better comes along and the market dictates their destruction. Then they squawk louder than any socialist I ever heard.

Re:Business models?

[mTor]

Since when? Well... since 1998, I think. Here's more:

The patentable assets of the e-commerce business may also include the "business model" of the e-commerce enterprise -- that is, the systems and methods constituting the unique operational structure of the business. The United States Court of Appeals for the Federal Circuit recently has sanctioned such business model patenting (State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999)). As a consequence, business system/business method patents are now being filed and issued in large numbers. --Steven J. Hultquist, "Maximizing the Value of Proprietary Rights in E-Commerce," IPTL Notes, Winter 1999

And then this:

Juno patented an offline ad-delivery process, and Netcentives did the same with its ClickRewards scheme. Cybergold, Priceline, and Open Market have also rushed to patent biz models. Business-model patenting appears to be the lastest, greatest way to gain cred. --Jess Freund, "Hype List," Wired, February 1999

Re:Business models?

[no_pets]

Great example, wrong company.

http://en.wikipedia.org/wiki/Red's_Giant_Hamburgs

Re:Business models?

[schon]

Since when are business models subject to patent rights?

Since July 1998.

Re:Business models?

[rednip]

Great example, wrong company.

Actually that would make Mcdonald's patent example a better real world example, as many of these granted business model patents are just as disputable, as prior art seems to be often overlooked. Many claim that they often violate the novelty, and non-obvious requirements stipulated by patent law as well.

Re:Business models?

[jo_ham]

I think you missed the point of the joke. This was an obvious nod to the (erronously summarised) story earlier this week about MS patenting verb conjugation, adding more fuel to the "patent obvious stuff: profit" model that has been emerging over the past few decades.

Re:Business models?

[geoffspear]

The 1-click patent is problematic, sure, but it's not really in the same category as this one. This is more like is Amazon tried to patent selling books on the Internet.

Re:Business models?

[letxa2000]

Blockbuster is right, Netflix is wrong. I think this will be a useful case that could actually highlight just how messed up the patent system is. There is absolutely nothing novel about letting people keep a DVD as long as they want, there's nothing novel about letting them rank the order in which they want to watch them, and there's nothing novel about doing it online.

Re:Business models?

[hey!]

Since when are business models subject to patent rights?

Since July 23, 1998. That was when the United States Court of Appeals for the Federal Circuit handed down the decision in State Street Bank & Trust Company v. Signature Financial Group, Inc.

Products, yes, but business models?

Products are not patentable; it's inventions that are patentable. Prior to the ruling, business methods were often asserted to be abstract ideas, like mathematical algorithms. You can't patent laws of nature, natural phenomenon, or abstract ideas including mathematical algorithms. You can only patent useful, applications of these. By analogy, you can't patent the consumer procrastination, but you can patent exploiting this by creating a subscription service where your competitors are creating rental services.

I think business method patents are a completely unintended result of the constitutional authority to grant patents from article 1 section 8. However, the court's reasoning in State Street v. Signature is impeccable. Congress has been granted the right to patent inventions without any stipulation as to the kind or nature of the invention. Given that this is so, it's hard to argue that novel business methods ar not inventions. Furthermore, the SC has pretty much ruled that the Congress may use the powers it is granted in the Article 1, section 8 in any manner they see fit, even if the results contradict the intent of the framers.

So, if Congress uses those powers in a way that expressly retards the progress of the useful arts and sciences, what matters is the extent of the powers used, not the use to which the powers are put.

So, even if buisness and software patents are manifestly a bad thing, Congress may create them.

In his Second Treatise on Government, John Locke, who was the primary philosophical influence on the framers, described the conditions under which things which are common property can be privatized. The fundamental principle is that any appropriation of the commons as private property requires that "enough and as good" be left for others. Claiming the idea of a business strategy by creating a business method around it seems to fail this test. But then again, if abstract ideas are in the commons (as patent theory says they are) claiming almost any invention as your personal property probably fails this test. Which is why patents are a time limited form of property, if it indeed is proper to call them property at all. They are a deal between the state and the inventor, which the state undertakes for the public good. If the state undertakes such deals against the public good, then the proper response in a democracy is to change the people running the state.

Re:Business models?

[Apocalypse111]

Thank you for getting my joke. I hope your parent poster remembers that getting modded funny doesn't help karma.

Re:Business models?

[pluther]

I'm not sure who the first was, but up to 30 years ago, you could rent books on tape the same way. They were mainly marketed to the blind, and you ordered from a paper catalog, not the internet, but the keep them as long as you like, get the next one when you return them ideas were the same.

Also, my local library (Multnomah County, downtown Portland Oregon) did the same thing: for one dollar per book, you could get a book, either from the library or inter-library loan sent to your house. You could only have two out at a time that way, and you could have a queue which, in the mid-80's, you could update online by dialing in (directly, via 300 baud modem!). (You could also update it over the phone, by mail, or in person at the branch, I believe). They would send the next one when you sent one back.

These are the only two I can think of. But any decent patent lawyer should be able to find these and others pretty easily, I would think.

What about other companies doing exactly the same thing? Like DVDBarn, Intelliflix, etc.? Is Netflix suing them, too?

Re:Business models?

[greed]

Grandparent should be picking on the "obviousness" criteria. Lots of things are novel--the first time, of course--but that's not enough to be patentable. It has to be non-obvious to someone skilled in the art.

And I don't really see how Netflix is not obvious to someone skilled in the arts of mail-order subscriptions and rentals.

(I know that mail-order and rental has been combined before; the video store I worked at in the late 80s had a mail-order sales and rental business for customers in Northern Ontario. It was very expensive, but there wasn't anything else those people could use at the time. Some corporate libraries do a similar thing, using inter-office mail and the mainframe. So it's been a few years since I used one of those....)

Re:Business models?

[timeOday]

Your comment resonates with Blockbuster: "Netflix is trying to monopolize the online movie-rental industry and stifle competition."

But I ask you, what is the point of a patent at all, if not to create a monopoly and stifle competition? Patents are an open admission that pure supply and demand capitalism is not workable (or at least not equitable). I guess the only question is how high the bar must be for an innovation to be deserving of a government-imposed monopoly. Or at least, how long that monopoly should be upheld.

Re:Business models?

[DragonWriter]

I'm not sure who the first was, but up to 30 years ago, you could rent books on tape the same way.

Did they use the Netflix style mailer? Did they use the Netflix-style preference lists, or strict this-one-next queues or some other method of selecting what you get? Because those seem to be the two specific patents at issue, and doing something similar in outline but outside of the specific innovation claimed in the patent isn't clearly prior art relevant to the patent.

What about other companies doing exactly the same thing? Like DVDBarn, Intelliflix, etc.? Is Netflix suing them, too?

It may be more efficient to pursue such lawsuits in series rather than parallel, its also possible that the details of some of the similar operations avoid the specific patented processes. It may be that they've C&D'ed some of the others, and are negotiating and haven't gotten to the point of filing a lawsuit yet. It's hard to tell.

It could have been the shortest patent ever

[MikeRT]

"You can't compete with me. I was here first. Go away!"

Busted, but maybe not...

[Six Nines]

Some of those patent claims sound a little fishy, but IANAL. However, it's interesting that my main squeeze signed up for Blockbuster's service about the same time I got Netflix, and the first comment out of her mouth when describing it to me was: "It's just like Netflix!" Curiouser and curiouser...

Re:Busted, but maybe not...

[Deadstick]

They certainly developed a silver bullet of a model. I had an interesting experience recently: dropped a fistful of mail into the box at the Post Office, then came to the sickly realization that I had put neither postage nor return-address stamps on. The postmistress sent a helpful clerk -- yes, I said helpful P.O. clerk -- to open the box and stand watch while I rooted out my envelopes.

That bin was almost a sea of red. Netflix envelopes by the TON. I commented on that, and the clerk said yes, the P.O. was proud of the special handling deal they have.

Netflix is now the fifth largest user of first-class mail. At the cities where they have processing centers a Netflix truck drops a load of outbound envelopes bagged by ZIP code and pre-sorted down to carrier route, and picks up the incoming directly off the dock.

rj

I'm pulling for Blockbuster

[xannik]

How exactly is renting movies online an original or novel idea? I think Netflix is feeling the pinch in their pockets from Blockbuster and is resorting to some desperate measures. I really hope the courts send a message to businesses that patent lawsuits are not just another source of income.

Re:I'm pulling for Blockbuster

[Zenaku]

Maybe it doesn't seem original now that everyone is getting in on the act, but original and novel is exactly what it was. Know of any companies that were using that business model before Netflix? I sure don't. The fact is, it was a brilliant idea that seems obvious in retrospect, as most good ideas do. And they had to overcome several hurdles and solve a lot of problems before it became workable and profitable -- such as finding a way to send dvds through the mail without incurring overly frequent breakage, or paying too much in shipping costs to offer the service at a reasonable price.

I don't know if any of that is patentable, and I'm inclined to say that it shouldn't be, (which is too bad, because I fscking hate Blockbuster), but it might be. I'm pretty sure I've heard of other cases involving patented business methods.

For the record, I use Netflix, I like Netflix, and I hope they remain successful. It seems to me that whenever someone comes up with a great new service, some other company barges into the market, undercuts them out of existence, then jacks their prices, cuts their quality of service, and starts finding ways to force additional product down your throat that you don't want. Or ads.

That being said, I hope Blockbuster and the others remain successful too. Somebody has to keep Netflix honest and give me somewhere to turn if Netflix starts mistreating me. ;)

Re:I'm pulling for Blockbuster

[kthejoker]

Yes!

Many of those hurdles could no doubt be covered by patents (such as "A Package To Mail A DVD without Breaking It") and good old fashioned business acumen ("We cut an exclusive deal with Fed Ex, and pass the savings on to you") in a way that encourages competition.

Being first matters a lot. It instills loyalty. But it's not a guarantee. And you know what? If some guy can come along and beat you at your own game, that's not inherently a bad thing. And if Blockbuster jacks up the price, someone else will just come along and compete with them, undercut them, and the cycle continues. There's no free pass in the market.

The *real* problem with NetFlix's model is that it's impersonal. It's just a DVD in the mail. Nobody cares about the color of the envelope. In fact, the NetFlix business model is the IDEAL "faceless corporation" business, because it's a

a) middle man service
b) driven by economies of scale
c) for a product everyone wants.

It's not a lemonade stand or a piano lesson. It's hegemony waiting to happen.

Re:I'm pulling for Blockbuster

[0xABADC0DA]

Bug#: 821866
Product: Captitalism
Reported Agains: 2.0
Severity: Critical
Status: RESOLVED
Resolution: WONTFIX

Report describes proper operation of Capitalism 2.0 (see spec at Constitution/1_8#commerce). Please read project documentation before submitting further bug reports.

It seems to me that whenever someone comes up with a great new service, some other company barges into the market, undercuts them out of existence, then jacks their prices, cuts their quality of service, and starts finding ways to force additional product down your throat that you don't want. Or ads.

Re:I'm pulling for Blockbuster

[BalanceOfJudgement]

or paying too much in shipping costs to offer the service at a reasonable price.

Netflix overcame that "hurdle" by the very, very fraudulent practice of throttling. I wouldn't call that an innovation.

I was a Netflix user when it first came out, and cancelled the service only because I didn't rent enough discs for it to be useful. Now I use Blockbuster because their delivery is faster (there's a distribution center next town over so I get my DVDs in 1 day, sometimes less if I time it right).

That said, I never really thought of the service as 'novel' - I considered it the logical extension of video rental stores in the real world. It's not what I would consider 'non-obvious' which is one of the conditions of a patentable innovation.

What Netflix DID do was bring together a lot of good ideas and put them in one place (internet, a list of movies you want to rent, not having to leave the house). Sort of like MySpace did and why it has far surpassed all other social networking sites. Yet, in neither case does that seem to me to be the development of a novel idea - it is simply good business practice.

In other news

[rolfwind]

SCO is suing Netflix for stealing its business method....

I for one...

[mr.newt]

I for one am rooting for the little guy.

Oh, wait...

Blockbuster may have a case

[w33t]

Maybe blockbuster could countersue for the business model of renting movies on a recorded meduim and then returning them to rent of others.

What a let down....

[Himring]

I'm a big netflix fan. I got into it in order to re-watch the entire xfiles series last year. I also like the story of its origins: someone finally got sick of ridiculous late-fee charges, and in answer, blockbuster lost mega business. Blockbuster countered with its own service which I thought was not doing well against netflix. This latest news seems to indicate otherwise.

But netflix using patent laws this way is crazy. Blockbuster should counter with the charge that they own the ability to perform the action of receiving monetary units for analogue and digital copies of light and audio produced theatrical and documentary events....

Re:What a let down....

[bmalia]

I was a big netflix fan. But when all of this started, I terminated my service and sent customer service an e-mail explaining why. I had hoped netflix was a decent company, but these tactics to monopolize are pissing longtime customers off.

Re:What a let down....

[hhawk]

They didn't do away with the late fee, they just figured out it's better for you and them (mostly them) to get a regular monthly fee out of you. There is a finate # of discs you can rent (if youw watched them as fast as you can).

In many ways its better for them if you get three disc from them and never send them back. They buy 3 new ones and you keep paying and paying for them...

Ben Franklin said it best...

[sugapablo]

In his autobiography, he recounts that he was offered a patent on a new
kind of stove he invented that was a tremendous improvement in terms of
heating a building and in reducing the amount of wood needed.

He declined this patent, stating that from "Principle which has ever
weigh'd with me on such Occasions, viz."...

"That as we enjoy great Advantages from the Inventions of others, we
should be glad of an Opportunity to serve others by any Invention of
ours, and this we should do freely and generously."

But screw that, right?

Re:Ben Franklin said it best...

[HoboMaster]

Unfortunately, not everyone's as cool as Ben Franklin. Especially with his use of 'd instead of ed. I love that.

Re:Ben Franklin said it best...

[Tony]

I have lov'd his style. Surthermore, I admire the use of 'S' in place of 'f'. It just Looks Cool.

Also, he's the guy who wrote, "Fart Proudly." He is a man to be admired, and emulated. Live lustily and long, that's my motto.

Sit in front of a computer eating Cheetos, that's my life.

Go blockbuster!!

[ConsumerOfMany]

I for one hope Blockbuster wins this hands down. I use Netflix, love the service (6 at a time, one day turnaround and haven't noticed any throttling yet ~35-40 movies month) I tried Blockbusters service and was not thrilled with the selection and turnaround, although not significantly worse just my preference. The shear fact that blockbuster is in the market though is what will keep me happy with Netflix. If Netflix sat as the only one for too long, they would inevitably succumb to greed.

Re:Go blockbuster!!

[Red Flayer]

I use Netflix, love the service (6 at a time, one day turnaround and haven't noticed any throttling yet ~35-40 movies month)

Holy crap, your slashnick is appropriate, ConsumerOfMany.

You're a marketer's wet dream!

Re:Go blockbuster!!

[pdhenry]

How can anyone possibly watch 35+ movies a month?

Who said anything about watching them?

Classic...

[MudButt]

It was only a matter of time. Porter's model proven again. Blockbuster (like Microsoft) let its guard down and let a critical external force overtake its market-share: Substitutes.

Go ahead Netflix, kick 'em while they're down! You're the new guerrilla in the DVD rental business, and rightly so. On behalf of every poor college kid that ever got a collections notice for $4.38 for late fees that weren't paid in 4 weeks or less, I say thank you. Bury the bastards.

Re:Classic...

[truthsearch]

I'd rather see them buried by the market than the legal system.

Re:Classic...

[Zenaku]

Yes, they do. They just renamed them "restocking fees" and made them flat instead of scaled to the amount of time by which the return was late.

Patenting business models?

[Niten]

If we're lucky, this might be the case to finally set a precedent against the old formula

traditional business model + online = patent

If Blockbuster doesn't settle out of court, that is...

The patents

[truthsearch]

For further reference, here are the patents:

6,966,484

Mailing and response envelope

Abstract
A mailing and response envelope for conveying an item from a sender to a recipient and back is disclosed. The envelope comprises a base panel, a sender address panel, and a recipient address panel. The sender address panel is affixed to the base panel by an adhesive region. The sender address panel and adhesive region define a pocket sized to accept an item. The adhesive region extends laterally on the base panel in an amount selected to ensure that a postal cancellation is not applied to an area overlying the item. The recipient address panel is joined to the base panel by a detachable joint. In this configuration, a fragile item may be conveyed from the sender to the recipient and from the recipient back to the sender without damage to the item.

7,024,381

Approach for renting items to customers

Abstract
According to a computer-implemented approach for renting items to customers, customers specify what items to rent using item selection criteria separate from deciding when to receive the specified items. According to the approach, customers provide item selection criteria to a provider provides the items indicated by the item selection criteria to customer over a delivery channel. The provider may be either centralized or distributed depending upon the requirements of a particular application. A "Max Out" approach allows up to a specified number of items to be rented simultaneously to customers. A "Max Turns" approach allows up to a specified number of item exchanges to occur during a specified period of time. The "Max Out" and "Max Turns" approaches may be used together or separately with a variety of subscription methodologies.

Re:The patents

[duerra]

I can undertand the patent case for the envelopes that Netflix uses. That is a pretty novel invention, and one that I have not seen before. They may have a case on that one. I'd also like to hear if anybody has a good rebutall as to why that patent would not be valid.

As for the other patent, I stopped reading at "a computer-implemented approach for renting items to customers". That patent is just lunacy, and as the abstract explains it, I have no idea how it could get through the patent office. That's just plain wrong.

Injunction

[necro81]

FTFA:

If Netflix is able to obtain an injunction, then that means that people who rent through Blockbuster's online service have to find some other way or go down to the local store to rent their movies.

If the judge in the case grants an injunction against Blockbuster's online service, there will indeed be many pissed customers out there. Thankfully, Blockbuster has at least one way to mollify them in the meantime: give their customers the same X-rentals-at-a-time access to their brick and mortar stores as they do through online rental queues. Blockbuster's online rental service already includes vouchers for a fixed number of store rentals per month (in parallel with the online queue rentals). This would just make it entirely brick-and-mortar based. The store on the corner doesn't have nearly the selection, but it might hold over some customers that would otherwise quit Blockbuster. There should be some way to craft it that doesn't encroach on the patents in question.

Note to self

[Anon-Admin]

Note to self,

Time to patent new business model that increases customer satisfaction through the extension of services at prices the customer can afford while providing support and an extended "Customer is right" attitude.

Then I can sue all the companies that have happy customers, hmmm It may be hard to find them now.

Just in Time for my Meeting

[DeanFox]

Netflix is doing a marketing research thing in my area. I've agreed to meet with them in person for 30 minutes next week in exchange for 4 months free service. Now along with their throttling I'll have something else to hit them with.

Any suggestions of other stuff you'd want them to know or have your complaints heard through me? I'd be glad to bring it forward.

-[d]-

It's not new

[wbean]

When I lived in London in the 50's Harrods had a lending library. You paid a monthly fee and they assigned a librarian to you. He/she (mostly she) picked out books for you - or you could request specific titles. The books were delivered in Harrods green electric vans. When you'd finished a book Harrods would pick it up and ship you another one. Sound like a familiar business model? It even involved technology (the electric vans).

(I've posted this information before, but it seems to bear repeating.)

Re:It's not new

[KarmaMB84]

God, I hope that was a joke because adding DVD and internet to it shouldn't make it original.

Good luck to Netflix on this one....

[Churla]

I have an ex who worked for Blockbuster for quite some time.

They were developing methods for on-line rentals and even on-demend video distribution back in about 1999 IIRC. Netflix was actually copying Blockbusters model , only doing it on line, until then. (Having late fees, etc, making people pay for postage).

They will be deperately hard pressed to prove they innovated many , if any, of these business practices, and I believe some of their patents could actually be thrown out because of being brought to the light of day like this.

I despise with a passion "business model patents" which basically say "we figured out how to do business, don't you dare try to compete with us!"

needs more patents

[srchestnut]

Blockbuster should just patent the business of renting videos and dvd's then sue netflix and everyone else while they're at it. Then RIM could patent a 'Method and system for patenting overreaching and obvious patents' and sue both of them. First to concieve baby!

Re:Counter-suit?

[Anonymous Coward]

Can't Blockbuster sue Netflix for renting movies period?

No, because Video Station was the first rental chain in America, not Blockbuster. They started in 1977, 8 years before Blockbuster existed. Prior art, my friend...

Family Video is a nice alternative!

[gozar]

For those complaining about Blockbuster, if you have a Family Video store near you, check them out. New movies are $2.59 for a day, but anything old is $1 for 5 days. I've looked into Netflix, but it's more expensive for my viewing habits (a couple of movies a week).

Re:interesting

[grahamwest]

I'm not familiar with the Harrod's vans but electric vehicles have been used for milk delivery for many, many years in Britain. Milk floats don't go fast (there are multiple TV sitcom sketches involving milk float chases making light of this fact) or have much range but they are quiet and thus preferable for pre-dawn driving in residential areas.

Exactly!

[loqi]

Since when do politicians nip problems in the bud? Folks, this has to get worse before it gets better. Our patent system will receive the overhaul it desparately needs when:
A) There's a concrete enough financial interest that it generates a lobby.
B) Joe Sixpack is displeased with the situation.

We can all make B) appear to come a little faster by bitching to our Congress-critters every time we see an abuse like this. Remember net2phone's "method of establishing a communication channel by exchanging IP addresses" patent? Don't let this shit slide!

Patent Nonsense Business

[Doc Ruby]

Business patents are by definition monopolies. No patent should be awarded on anything that isn't a working mechanical device, at least a prototype. Descriptions of ideas, whether human readable or machine readable, are subject only to copyright. Identifying marks, like logos and slogans, are only trademarks.

These principles are obvious. Not only are they politically obvious to anyone who understands that artificial government monopolies must merely balance freedom of expression against investment protection. They are obvious to anyone in business. It's obvious to people patenting how much advantage they gain. And it's obvious to people excluded how much competition it prohibits.

Maybe now that American business is becoming at least as much a consumer of IP as a producer, these corporations will battle away the IP law imbalances that crimp their economy. Then we'll also see how obvious it is that corporations are the only "persons" which matter to the government.