tinyurl.com/qvqpw -> today.reuters.com/news/newsArticle.aspx?type=internetNews&storyID=2006-04-06T014212Z_01_N05387732_RTRUKOC_0_US-MEDIA-NETFLIX.xml
Netflix on Tuesday sued Blockbuster in federal court in San Francisco, seeking an injunction to stop Blockbuster from infringing on two patents that protect Netflix's business method. The patents cover Netflix's practice of having subscribers prioritize "queues," or lists of titles they want to rent, on Netflix's Web site, and of automatically replacing each DVD that is returned for the next title on the subscriber's queue. Piper Jaffray analyst Safa Rashtchy likened the suit to one filed by Yahoo Inc. in connection with claims that Google infringed on Overture's paid search patent. Google ultimately settled the case by agreeing to take out a license to the Overture patent and several related patents for shares of Google stock worth about $450 million, according to the Web site of Overture's attorney, Robert Fram. "Netflix really did create this model when no one else was doing online DVD rental and they made a business of it," Rashtchy said. "As far as I know, no one had created a monthly subscription model where you were not purchasing but renting." Rashtchy said, however, that some holders of business process patents have trouble enforcing them and noted that Blockbuster Online, which has 12 million subscribers to Netflix's 42 million, is not yet making a profit and may not have the revenue to pay royalties. A victory in court for Netflix also could dissuade other competitors from entering the online DVD rental market, Rashtchy said. Marc Lieberstein, a patent attorney with Pitney Hardin, said there is little legal precedent for business process patent disputes of the type Netflix is bringing, because most actions settle before they get to trial. Lieberstein said Netflix could be entitled to seek royalty payments that would accumulate "every time someone rents a Blockbuster movie." Lieberstein said it would be difficult for Blockbuster to claim not to have known about Netflix's patent. But he said Blockbuster, which is the largest North American rental chain, could try to invalidate the patents by proving that the online renter's business methods were invented before Netflix applied for the patents.
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