Blockbuster, Netflix Call Patent Truce

Two fierce rivals in the DVD rental business have called a truce - at least when it comes to patents. Blockbluster has agreed to settle with Netflix over charges that the brick and mortar retailer infringed on Netflix's online DVD rental patents when it launched Blockbuster Online.

In April 2006, Netflix asked a judge to bar Blockbuster from allowing online rentals, saying the company was infringing on two patents. The first was awarded in 2003 and covers the concept of the automatic queue, which customers add to from the company's library and then receive movies in a customizable order of preference.

The second patent was awarded on the day of the lawsuit, and covers the method that allows Netflix subscribers to keep the DVDs for an unlimited amount of time, and "to obtain new DVDs without incurring additional charges and to prioritize and reprioritize their own personal dynamic queue--of DVDs to be rented," the lawsuit read.

Netflix claims that Blockbuster knew of the company's 2003 patent and its work towards the second, yet ignored them with the launch of Blockbuster Online. Netflix added that the action to sue Blockbuster had to be taken in order to protect its business interests.

Blockbuster then countersued Netflix, claiming fraud and antitrust violations. It also said Netflix's patents were too broad to actually be enforced.

Analysts saw Netflix's lawsuit largely as a a defensive move; Blockbuster challenged Netflix's business by lowering prices and offering customers the ability to return online DVD rentals at its physical stores. The company still has far fewer subscribers than Netflix, but its online efforts have become a central focus moving forward, with store employees also tasked with signing up customers to Blockbuster Online.

Terms of the settlement were confidential, but Blockbuster said it would not have a material effect on future earnings.

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