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Judge Allows Blockbuster Countersuit Against Netflix to Proceed

A federal judge in San Francisco on Aug. 23 allowed Blockbuster to proceed with antitrust claims against Netflix, denying three motions Netflix had made to scuttle or delay the suit.

Blockbuster started Blockbuster Online two years ago, challenging Netflix's domination of the on-line video rental business. In April, Netflix sued Blockbuster for alleged business method patent infringement, and Blockbuster responded with the antitrust suit.

Netflix had asked the court to dismiss Blockbuster's countersuit, to split the two lawsuits into separate proceedings and to postpone discovery on the antitrust lawsuit until after the patent claims are resolved.

But U.S. District Judge William Alsup dismissed all three motions, saying Blockbuster "adequately pled its antitrust counterclaims" that Blockbuster may be forced out of the market "as a result of Netflix's purported monopolistic conduct."

In the patent suit, Netflix claims that Blockbuster copied Netflix's business methods, including the online queue that subscribers use to prioritize films they want to rent, a no late fees policy and the practice of allowing customers to get a new DVD as soon as they return one.

Netflix filed the case in federal court in San Francisco on April 4, the same day that it received a business methods patent covering the processes and policies it cited Blockbuster for stealing.

Netflix's patent application initially had been denied by the U.S. Patent and Trademark Office based on the so-called "technological arts rejection," which drastically limited patents of business methods that lacked a technological aspect. But last fall, the Board of Patent Appeals and Interferences ruled that such rejections violated federal law, removing a hurdle to many business methods applications.

Contributing Author

Mary Swanton

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