The Online Movie Rental Battle

I. Introduction

the concept of movie rentals via the internet be protected by a
patent?  Netflix, Inc. seems to think so.  That is what prompted them
to sue Blockbuster, Inc. for infringing their patents by starting up
Blockbuster Online.  But Blockbuster thinks Netflix has invalid patents
and that the monopolization of the online movie rental business would
not be fair.  These are the issues that recently came up in Netflix,
Inc. v. Blockbuster, Inc.  [1].

II. Analysis

Netflix is suing Blockbuster for infringing their patents by
starting Blockbuster Online which also allows consumers to rent movies
through the internet, similar to what Netflix offers.  [2].  Netflix has two patents that describe methods for renting items for ordering digital video discs (DVDs) via the internet.  [3].  Blockbuster feels there is nothing original about renting movies to customers through the internet.  [4]
To obtain a patent, the patentee must show that their invention is 1)
new (the novelty requirement), 2) useful (the utility requirement), and
3) nonobvious.  [5].  Blockbuster says that Netflix didn’t disclose any prior art in conjunction with their first patent application.  [6]. 
They believe Netflix obtained their patents fraudulently by “omit[ing]
certain material references in conjunction with both patent
applications.” [7].  To be more specific, Blockbuster
is referring to the patents owned by NCR Corporation that described
methods on topics such as: Ordering and Downloading Resources from
Computerized Repositories.  [8].  This means, as
Blockbuster contends, that Netflix was on notice of the existence of
NCR’s patents at the time they filed their patent application. [9]. 
This is important because the way an examiner decides to grant or deny
a patent is by reviewing the prior art.  As was stated above,
Blockbuster believes Netflix obtained their patents fraudulently for
not disclosing the prior art that was relevant to their idea, [10], thus rendering Netflix’s patents invalid. 

Blockbuster is also asserting a counterclaim that says Netflix is trying to monopolize the online movie rental industry.  [11]. 
 In theory, if Netflix’s patents are indeed found to be valid, they
would be doing just that.  But that is the point of patent protection. 
It is a sort of “legal monopoly” that allows an inventor to have
“exclusive Right to their respective . . . Discoveries.” [12]. 
If the patent is found to be invalid, then Netflix can not monopolize
the movie rental industry and thus Blockbuster’s counterclaims would be
pointless.  But the court said if the allegations about withholding the
prior art are proven, Blockbuster may “demonstrate the abuse of process
to succeed on [their] claim.” [13].

Netflix attempted to dismiss Blockbuster’s counterclaims because
Blockbuster has not pleaded any underlying fraud with particularity. [14].  But the court found that Blockbuster identified Netflix’s potential bad faith with particularity. [15].  So as of now, the court is letting Blockbuster go forward with its antitrust claims against Netflix.  [16].

III. Next Steps

So where does this leave us?  Patent attorney Victor de Gyarfas, of the
Los Angeles office of Foley & Lardner, said “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. It's not going to shut down an
entire class of users, like the BlackBerry case, but lots of people
could be inconvenienced.” [17].  It just seems like
it will be a minor problem for consumers who will either have to switch
over to Netflix or get up and go to a movie rental store.  The problem
for Blockbuster, however, will not be so minor. 

[1] Netflix, Inc. v. Blockbuster, Inc., No. 06-2361, 2006 WL 2458717 (N.D. Cal. Aug. 22, 2006).

[2] Id.

[3] Id.

[4] Tresa Baldes, No Happy Ending for Net Movie Renters (September, 8 2006),

[5] 35 U.S.C. §§ 101, 103 (2000).

[6] Netflix, Inc. v. Blockbuster, Inc., No. 06-2361, 2006 WL 2458717 (N.D. Cal. Aug. 22, 2006).

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] U.S. Const. art. I, § 8, cl. 8.

[13] Netflix, Inc. v. Blockbuster, Inc., No. 06-2361, 2006 WL 2458717 (N.D. Cal. Aug. 22, 2006).

[14] Id.

[15] Id.

[16] Tresa Baldes, No Happy Ending for Net Movie Renters (September, 8 2006),

[17] Id.

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