Netflix Claims Its Business Model Is Patented, Sues Blockbuster

from the oh-come-on dept

Tue, Apr 4th 2006 7:40pm — Mike Masnick

All of the evidence so far has shown that Netflix has consistently beaten Blockbuster in the marketplace by offering a more compelling product to many people. Blockbuster keeps trying to get back into it, but hasn't been able to build up nearly the same user base -- despite its name recognition and ubiquitous stores. With that in mind, it's disappointing to see Netflix now resort to yanking out their business model patents and trying to force Blockbuster out of the online rental business. Here's a perfect example where that patent isn't at all needed to incent innovation. The market is doing a perfectly good job. The only thing this patent serves to do is reduce competition, thereby reducing continued innovation in that market. In the meantime, both companies will now waste money on fighting this out in court or coming to some sort of monetary settlement -- when both firms would be better served putting that money into improving what they offer customers.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

35 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Anonymous Coward, 4 Apr 2006 @ 8:17pm

Yea! First Post. Go get em boys. Maybe you can sue em if they don't slow their mailings down to fast returners also!
[ link to this | view in thread ]
J, 4 Apr 2006 @ 8:43pm

Re:
how do you know that they do that?
[ link to this | view in thread ]
Mike, 4 Apr 2006 @ 8:45pm

Sue Happy America
Am I the only one that thinks that being #1 in a competative market says more than being #1 in a market of only one?

If this court battle sticks then the person/company that had the first monetary transaction over the internet should in turn be able to sue any company who has, is or ever had an e-business for copying their idea. Damn the luck, it would probably be microsoft!

Aaaarrrrggghhhh, gotta love America!!
[ link to this | view in thread ]
StnkBll, 4 Apr 2006 @ 8:47pm

You Have Got to be Kidding Me
Well, I happen to like Blockbuster as I get more for my money (free in store rentals) AND I get my movies sent quickly without restrictions (who knows if that will change).

Sounds like Netflix doesn't like the competition or a company that is providing a better product despite a smaller customer base.

Like the orginal post stated it would more beneficial for both companies to work on improving their offerings than battling in court.
[ link to this | view in thread ]
Jordan Amdahl, 4 Apr 2006 @ 8:48pm

Patent Law
You haven't provided enough evidence to show that patent law is not working in this case. The point of patent law is to encourage creation of new productions by giving inventors exclusive rights to their inventions. It is a given that after the product is invented, patent law restricts competition. The point is that the product might not have been invented in the first place if the inventor didn't know that he would have the right to what he creates. In order to actually form an argument against patent law in this case, you need to show two things:
1. Inventor had sufficient incentive to invent the product/service without patent law.
2. Competition is restricted after product/service is invented due to patent law.

Don't take this as a defense of patent law; its economic justification is not entirely sound. I just mean to point out that the argument against it you presented is not complete.
[ link to this | view in thread ]
"Back-up Master", 4 Apr 2006 @ 8:53pm

Re: Re:Backups are good
Ever tried it? If you had then you would know it is true.....and it sucks!! To get around it try upgrading your membership to the next level for a week or so, then downgrade. Tricks the system....untill they read this :)
[ link to this | view in thread ]
qyiet, 4 Apr 2006 @ 8:56pm

Say what?
You can patent a business model?

Wow.. your patent system is *messed* up.. I hope ours is better
[ link to this | view in thread ]
Anonymous Coward, 4 Apr 2006 @ 8:57pm

Its the competition that led Netflix to this "innovation". Netflix isnt concerned with "what it says to be #1", they are concerned with $$, as most traditional companies are (hence M$)
[ link to this | view in thread ]
RTL, 4 Apr 2006 @ 9:12pm

Re: You Have Got to be Kidding Me
I used to like BB, too. But they just implemented a rate hike. I was one of the first to join BB when they first started out, but they have just alienated me with their rate hike. I am canceling and looking to Netflix or someone else. They had a good thing going and they had to get greedy. It never fails.
[ link to this | view in thread ]
Anonymous Coward, 4 Apr 2006 @ 9:26pm

Why rent?
When you can download for free and burn your own copy. After all, anyone complaining about Netflix throttling arrival time is already burning illegal copies. So, why not just download and do it all for free? Fuck corporations and associations!
[ link to this | view in thread ]
Hickory420, 4 Apr 2006 @ 9:30pm

Blah
Blockbuster SUCKS... Netflix RULES! :-D
[ link to this | view in thread ]
Geekster, 4 Apr 2006 @ 9:39pm

Voice of Experience
I've used both BB and Netflix, and Netflix's service is entirely superior to BlockBuster's wannabe copy. Better DVD's, faster service, lower price, great customer service..... Love Netflix!
[ link to this | view in thread ]
Craig, 4 Apr 2006 @ 10:05pm

Abuse of a bad patent system
Like we needed further evidence that the US patent system no longer serves its originally intended purpose. Shame on Netflix, but shame on the US government even more for not fixing what is obviously broken.
[ link to this | view in thread ]
Anonymous Coward, 4 Apr 2006 @ 10:05pm

Maybe Gamfly Next
Are patents are becoming like the workmans Unions. Useless. Unions aren't needed as most workers have more rights than they disserve. Software patents only stifle creativity as there is usually one right way to do somthing. If whoever developed the idea of ajax (well naming and combining the tech) patented it, no one would use it and this many new web 2.0 sites wouldn't exist as most start out with low revenue. All corporations seek greed, to help drive stocks because we all know our economy is reflected in our stock market (yeah right)....They'll probably be suing gamefly next for offering online video game rentals...
[ link to this | view in thread ]
Anonymous Coward, 4 Apr 2006 @ 10:05pm

Patent Infringement?
Ok so Netflix busts Blockbuster for online Rentals, so in turn Blockbuster busts Netflix, WestCoast Video and every mom and pop rental place for renting videos as a infringement on there patented business model. IE: Renting Videos ..... HRM ....

And FYI to the AC, not everyone with fast returns pirates movies
[ link to this | view in thread ]
Mike (profile), 4 Apr 2006 @ 10:15pm

Re: Patent Law
The point is that the product might not have been invented in the first place if the inventor didn't know that he would have the right to what he creates.

You don't think Netflix would have come along if they couldn't have received patent protection? I find that incredibly difficult to believe.

The point of patent law is to encourage creation of new productions by giving inventors exclusive rights to their inventions.

No, this is false. The point of patent law, as stated in the Constitution, is to promote the progress of useful arts and science.

It seems ridiculous that Netflix only chose this business model because it was patentable. What's much more likely is they saw an opportunity for a market and took it. The patent came after the fact, and was not needed in any way to incent the development of the model. Keeping the competition out again slows innovation in this market by giving Netflix a monopoly on it for the term of the patent.

The patent also does little public service in "revealing" its contents (the other side of the patent coin), since the business model is pretty clear for anyone who looks at their business.

So, yeah, I think it's pretty clear that this is a case of the patent system slowing innovation.
[ link to this | view in thread ]
Tom, 4 Apr 2006 @ 10:16pm

Re: Re:
Netflix has admitted that they slow down customers that are a little too, shall we say, enthusiastic about their service.
[ link to this | view in thread ]
Anonymous Coward, 4 Apr 2006 @ 10:22pm

Re: Re: Patent Law
"No, this is false. The point of patent law, as stated in the Constitution, is to promote the progress of useful arts and science. "

Barring a minor typo due to rewriting the phrase (products instead of productions...) that is what I said. Patents are supposed to encourage progress. Distribution models can fall under the protection of patents under some valid (but not necessarily correct) interpretations.
[ link to this | view in thread ]
Malicah, 4 Apr 2006 @ 11:08pm

Netflix Vs. Blockbuster
This if for those arguing over whether Netflix or Blockbuster offers a better online rental service.

I have used both services here recently and I think the difference is very simple....

Both of them cost the same, 17.99 a month for 3 DVD's at a time... but BlockBuster gives coupons for up to 4 free In-Store rentals a month. thus making blockbuster the better deal.

On the other hand though Netflix's system is far superior; Easier to search movies, better movie information, better movie suggestions, and much more. I also never had a problem with Netflix sending the wrong movie, where I did with Blockbuster. I also feel Netflix DVD's are in better condition, although I haven't had a problem with a DVD from either company.

So it comes down to.... Do you want quality (Netflix) or Quantity (Blockbuster). I prefer blockbuster as I like the better deal... and plus blockbuster is supposed to be redoing their interface... so maybe it will be comparable or better then Netflix's.
[ link to this | view in thread ]
Sick of this ----, 5 Apr 2006 @ 12:52am

Waste of the justice system's time
Can we please find more ways to waste the time of the justice system? How much more money does Netflix expect to make off this? I mean... I dunno. I can't find the right words that wouldn't get this post removed.
[ link to this | view in thread ]
Anonymous Coward, 5 Apr 2006 @ 1:15am

couple thoughts
1. If the patent really says something like "subscribers are not penalized for late movies," why doesn't blockbuster just enforce a year long rental duration? Some of the technicallities can be circumvented pretty easily.

2. All the problems BB has with wrong movies and stuff makes me wonder if Netflix doesn't reimburse it's employees for BB and have them all swap DVD's and scratch them up.... wouldn't surprise me.
[ link to this | view in thread ]
Eddie F, 5 Apr 2006 @ 1:58am

NetFlix needs a second opinion
Things are working as they should. A law firm fooled NetFlix into hiring them to file a unenforcable patent. Blockbuster decided to add Internet/Mail DVD rentals to thier business offerings. The law firm now must stand by the patent that they filed for NetFlix. Blockbuster will win the lawsuit and NetFlix will be told to pay for BlockBuster's court costs. The lawyers ALL get paid, the owners of NetFlix (share holders) lost a few cents on a dividend or share value, and NetFlix finds a better law firm.

NetFlix is making the poor business descision to not get a second opinion. An unbiased second opinion, with no financial incentive (future billable hours for lawyers) would advise Netflix that they invented nothing. There is nothing to patent in the first place.
They did not invent the Distribution model(Post office + Pre-paid return envelopes), the product (DVD's), the business type (service, rental), or the location (Internet capable computer).

They were simply the first to:
1. realize that renting DVD's using the Internet and delivered through the mail is a good idea.
2. have enough $$ to hire enough people (software developers, advertising agencies, accountants, BAD LAWYERS)
3. have enough $$ to launch a big enough ad campaign

Could a pizza place patent the idea of ordering a pizza online? Would that preclude all other pizza places from using the Internet to get orders? What about delivering pizza's on mopeds? Would that prevent my pizza place from delivering pizza's on mopeds?

It's just my opinion, but it sounds like things are working the way they should.
[ link to this | view in thread ]
Scott, 5 Apr 2006 @ 4:53am

tough
This is a tough one.

It really sucks to take a risk and create a business and suddenly have other people do the exact same thing right away.

Although the idea of renting movies through the mail seems simple. Netflix did it first (i think) and they did it well. and if the USPTO granted a patent, then I think they should enforce it.

I would rather see a company enforce their patents early, rather than sit on a patent until someone else is successful and then sue.
[ link to this | view in thread ]
Scott, 5 Apr 2006 @ 5:44am

Re: NetFlix needs a second opinion
Oh dear God, you did not just post that!

Now Pizza Hut or some other wingnut company is going to try to sue and probably win, and I won't be able to order online anymore.

Oh well, guess it is back to repeating my order twelve times and still getting the wrong order.
[ link to this | view in thread ]
Dave, 5 Apr 2006 @ 7:16am

Re: Patent Law
Jordan, I would question your reasoning. First you say:

It is a given that after the product is invented, patent law restricts competition.

Then you say:

In order to actually form an argument against patent law in this case, you need to show two things:
1. Inventor had sufficient incentive to invent the product/service without patent law.
2. Competition is restricted after product/service is invented due to patent law.

If that's true, then condition 2 is always met, making the premise absurd.
[ link to this | view in thread ]
giafly, 5 Apr 2006 @ 7:50am

Paging Blockbuster
Don't have people rent a fixed *number* of DVDs. Let them rent a fixed *value* instead. Normally it would make any difference, but occasionally customers will return an expensive DVD and get two cheap ones. Or visa versa.

Hopefully this would avoid Netflix' stupid patents.

Also, allow Netflix customers to automatically transfer to Blockbuster by returning their Netflix DVDs to you. You handle the admin and pay each customer a "Welcome" bonus.
[ link to this | view in thread ]
Wizard Prang, 5 Apr 2006 @ 8:23am

Can you patent a business model?
I suspect that the problem here is that too many ideas that are not patentable are slipping through the USPTO.

I also have a problem with companies that sit on patents and wait for someone to infringe them.

Also... if Netflix has had this patent since 2003, why have they taken until now to enforce it?
[ link to this | view in thread ]
wil, 5 Apr 2006 @ 11:39am

Re: Re:
I know they do that, and you can read their customer agreement or search Netflix on CNN.com for the info as well. The technique is called "throttling" and Netflix has openly admitted this tactic.
[ link to this | view in thread ]
Pin_Master, 5 Apr 2006 @ 1:10pm

Re: Why rent?
The problem with downloading movies is the quality. I would much rather pay netflix 20$ a month to get a dvd quality copy than to see someone get up in the middle of the movie and walk across my t.v. I know you can ocasionally find dvd rips to download but there is hardly the collection that netflix has. Plus, who wants to tie up their internet for a whole day to download a movie either. - the 20$ is worth it!
[ link to this | view in thread ]
Dino, 5 Apr 2006 @ 1:16pm

Re: Abuse of a bad patent system
Shame on Netflix

I totally agree. I think they not only don't need to do this, but are also proving to be a disappointment by being part of the problem. I wrote an email today to Netflix. I also posted it to my weblog:
Unfortunate activity from Netflix
[ link to this | view in thread ]
Dave, 5 Apr 2006 @ 2:24pm

ah, the real reason!
I see in the news right now... Netflix shares got a bump today.

Netflix may actually accept that this is completely unworthy of being patented, but they simply made a calculated, cynical move to raise the stock price.

More support for all that Techdirt has been saying about misuse of patents. I salute Techdirt for cutting through all the daily BS that's out there!!!!
[ link to this | view in thread ]
Thomason, 6 Apr 2006 @ 6:37am

Re: Can you patent a business model?
They sued on that earlier patent, but perhaps more so on a patent that issued to them the same day as they filed suit. It's USP 7,024,381.
[ link to this | view in thread ]
anonymous coward, 6 Apr 2006 @ 1:36pm

www.greencine.com

netflix et al are for sheep.
[ link to this | view in thread ]
rudy, 11 Apr 2006 @ 1:27pm

stupid lawsuit
this is a stupid lawsuit, this gives way for the Post office to sue UPS for delivering packages or for Ford to sue Chevy for making cars................etc etc....Competition helps keep the prices down and Im sure Netflix wont keep the price down if they dont have anymore competition
[ link to this | view in thread ]
Anonymous Coward, 28 Jun 2007 @ 4:16pm

bb sucks
blockbuster online service is crap my sister works there and i was told that if u watch ur movies to fast and send them in they will slow ur account down so u dont get that many movies so screw them netflix all the way
[ link to this | view in thread ]