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A Blockbuster of a Lawsuit Over Netflix

With the pocketbooks of millions of customers at stake, Netflix and Blockbuster are going head-to-head in court. The issue is whether the new Netflix patent, issued on Tuesday, covers Blockbuster’s online business model. Netflix is no stranger to litigation, having settled a class action lawsuit for allegedly punishing high volume users, by sending them less popular movies, something which led me to cancel my own membership several years ago.

One particularly interesting aspect of the case is Netflix’s selective enforcement of the patent against Blockbuster, when other entities seem to be doing the same thing. Blockbuster has already attempted to spin the lawsuit as confirmation of Netflix’s fear of Blockbuster’s potential dominance of the market. A more likely explanation might be that all the press surrounding the lawsuit may benefit both companies more than the litigation costs, which are shaping up to be astronomical.

The stakes involved are large enough to spell the beginning of the end for either online operation. If Netflix were to succeed, the royalties owed by Blockbuster could be devastating; especially if the judge were to treble the damages and award attorney fees as allowed under the patent statute. If Blockbuster were to succeed, Netflix customers, disgruntled over being previously “throttled” at the hands of Netflix, may seek less costly, more responsive providers that will surely emerge once the threat of patent infringement has passed.

My hope is that this lawsuit will be a lightning rod for issues pertaining to online “business method” patents. My fear is that the lawsuit is merely a relatively cheap marketing tactic by both companies. The pessimist in me predicts that the suit will settle once litigation costs threaten to overshadow the marketing value.

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