Netflix Accused of 'Monopolizing' Online Rentals

Blockbuster shot back at Netflix on Tuesday, filing a antitrust counterclaim in federal court saying that the online movie rental service's lawsuit is based on unenforceable patents. The company also says that Netflix is attempting to monopolize the online rental business.

With 1.3 million subscribers as of the first quarter of 2006, Blockbuster Online is much smaller than Netflix, which has close to five million members. The brick and mortar movie retailer has made online rentals a key part of its future business, as in-store revenue is expected to fall by as much as a quarter through the end of the decade.

Seeing Blockbuster as a threat, Netflix sued the company in April, claiming BlockBuster's online service infringes on several patents and asking for an injunction that would shut Blockbuster Online down.

Lawyers for Blockbuster say that Netflix is attempting to gain exclusive rights to online rentals through patent litigation.

"For Netflix to claim exclusive rights over subscription movie rentals is like a fast-food restaurant trying to patent selling hamburgers through a drive-through window," Lawyer Marshall Grossman, of Alschuler Grossman, Stein & Kahan in Los Angeles said.

Grossman said Netflix's claims to the "queue" are without merit, as there is no other way for an online service to let customers list what movies they would like to receive. Additionally, lawyers are making claims of "prior art," which has become a popular defense in cases where a company is seeking to invalidate a patent.

Netflix has admitted that such claims to prior art did exist, and had been put on notice of possible patent infringement by another company, according to a statement by Blockbuster.

"The court has the final say on whether a patent is valid and whether a company was honest in pursuing its patent," Grossman argued. "We state in our counterclaims that Netflix's conduct at the Patent Office was deliberately deceptive and that Netflix's goal all along has been to ultimately monopolize the online rental business."

Blockbuster chairman and CEO John Antioco seconded Grossman's comments, adding that companies should compete in the marketplace and not in the courtroom.

"However, since Netflix has filed what we believe is a needless lawsuit, we will aggressively defend ourselves and vigorously pursue our counterclaims," Antioco said in a statement.

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