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?

[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?

[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?

[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?

[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?

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.

In other news

[rolfwind]

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

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....

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?

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.

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:Classic...

[truthsearch]

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

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: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

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!"

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.

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.