Blockbuster sues Netflix (Anti-trust claims)

[Bronx]

A federal judge in San Francisco has allowed video rental giant to proceed with antitrust claims against online rival Netflix, which has sued Blockbuster for alleged patent violations.

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 its patent claims are resolved.

In a written ruling, U.S. District Judge William Alsup rejected on Tuesday all three motions, saying Blockbuster "adequately pled its antitrust counterclaims" and that Netflix did not show it would be harmed by allowing both sets of claims to proceed together.

"As a result of Netflix's purported monopolistic conduct, Blockbuster may be forced out of the market, which would cede to Netflix virtually complete control of the online-DVD market," Alsup wrote.

Alsup said, however, that Netflix can again try to dismiss the antitrust lawsuit at a later point in the proceedings.

Blockbuster spokesman Randy Hargrove said the company was "pleased with today's ruling and we remain intent on aggressively pursuing our antitrust counter-claims."

Netflix spokesman Steve Swasey said the company would "continue to defend our patents and business methods."

In April, Netflix sued Blockbuster in a bid to shut down 2-year-old Blockbuster Online, saying it knowingly infringed on two Netflix patents.

But Blockbuster said the lawsuit is based on unenforceable patents that Netflix obtained deceptively, in a bid to monopolize online rentals.

Source: Routers, CNet

[ROF]

Netflix biggest concern is the way they acquired the patents will come out in any court proceeding before they receive a judgement against Blockbuster which would make their case against Blockbuster(and every other online rental agency) null and void.

In short, Netflix opened up a huge can o' worms in order to attempt to monopolize the industry of online video rental and in turn their worms are on a hook and about ready to be swallowed by something called anti-trust law. They should have tried to compete with Blockbuster instead of suing them for patent infringement for patents that are invalid. Just because you create an online service doesn't mean someone can't come along and do the same thing. It's called competition and Netflix tried to shut them and every else out. Imagine ACME suing Walmart because Walmart calls themselves a department store and shelves things in different areas or departments. Do you think ACME stands a chance of winning? They were around long before Walmart existed and used to have department and grocery stores everywhere.

[lordsmurf]

"If you can't beat them, sue them."

Blockbuster is the dinosaur that suffered the consequences of being an ostrich for far too long. Early on, they had an option to buy Netflix but passed on it. BB thought online renting was a failed idea before they even tried it. It's sweet irony that NF would eventually topple BB as the rental giant, from that very sales market.

It's not so much that NF is a monopoly, BB did that for many years ... and there is competition both online and offline ... but rather that BB is no longer top dog and they're crying like children.

As far as NF patents, most "business practice" patents should be abolished anyway. I've read numerous times that such cases are going to the U.S. Supreme Court and initial appearances are that the courts will not side with the patents. We'll see.

Both suits seem pretty pointless to me. It'll just drive up prices for consumers using either service. Bastards.

[adam]

@ROF: I've read the Netflix patents but this is the first I've heard of claims that they were obtained deceptively and that they are unenforceable. Do you know the basis for the claims?

Just having a patent in the field of online rentals does not mean others cannot compete in that industry. The patents are on their computer inventory system and their mailing system. BB could still run their service but they might need to make some changes in their process.

@lordsmurf: Blockbuster is definitely licking their wounds but I wouldn't say that this suit is an example of them crying, or resorting to the courts because they can't compete in the industry. Its a countersuit. The only reason they are filing it is to prevent Netflix from enforcing their patent against them. All of this is initiated by Netflix. If BB wins then nothing changes... basically their suit is just their defense to the claims against them.

I agree 100% about business method patents though. I don't consider business methods inventions, and its too difficult to enforce them without unfairly disrupting that industry.

But I think maybe you're a little late when you say that business method patents are going to be tested soon by the US Supreme Court. I think you're referring to last session which just ended. There were more patent cases heard than there have been for 50 years. But there were only 2 that dealt with business method patents. One case was ruled on but they ended up not needing to rule anying regarding business method patents. The other case was dismissed for no particular reason. The Court just decided not to hear it. I don't think any patent cases have been announced yet for the next session.

[ROF]

Both suits seem pretty pointless to me. It'll just drive up prices for consumers using either service. Bastards.

Isn't that the nature of business? It is about time they both raised their subscription rates anyways. The cost of doing business in America in the last year has gone sky high and without a rate increase the profit margin has been ever shrinking. I do not know much about the inner workings of this case but I did read about Netflix patents and from a business standpoint it would seem logical that any business hoping to utilize an online rental service would have to use similiar or exact methods that both these companies do. That is why I say the patents are invalid in my eyes.

[adam]

Its tough to say with this patent. It does appear to be particularly broad. But patent claims are very specific and thus you can avoid an infringement just by changing a very minor aspect of your process. Even a trivial thing will suffice. If you look in any industry you'll find patents that at initial glance make you think that everyone else would be automatically infringing if they engaged in that same business. But its not the case. Netflix's press release behind this suit actually said that BB needs to change elements of its online rental service to avoid infringement, not that it cannot run the service at all. It could be PR talk though. Obviously they'd like to run BB out of their way entirely.

I did find out what BB's Antitrust claims are though. Turns out a company named NCR had existing patents relating to video rental and they informed Netflix that there was a possibility of infringement with regard to the Netflix patent. BB alleges that Netflix deceptively witheld this information from the Patent Office and that they also deceptively withheld information regarding prior art in the form of tv subscription models. I'm just going by commentary that I've read in legal blogs but many are suggesting that the prior patents and prior art are not particularly applicable to the Netflix patent and that its basically a hollow argument. Netflix has sued NCR though for declaratory judgment to prove that their patent does not infringe on NCR's.

[ROF]

That's what I meant. The patent is so broad it would be like Coca Cola applying for a patent to carbonated soft drinks, McDonald's claiming patent on drive-thru service. MGM claiming patents on Motion Picture theaters.

So you use a database/speadsheet program to keep track of customers. You use Mail-In envelopes and a delivery service to provide your internet customers with movies at their door. That gives you the right to say "Sorry I(Netflix) had some lawyer write a patent to the above and you(Blockbuster) need to either pay me or shut down your business." Just because the patent office happened to be Stamp Happy that day or it happened to be a Friday afternoon. The customer and business in general suffers under such patenting.

I am glad Blockbuster saw through this and will force Netflix to stop it's anti-competitive practices. I had no idea about the NCR company so this only backs up the common sense arguement.

Personally I like Netflix better for their service and selection. Both services are bad sometimes but I have gotten used to it. Delivery services sometimes get backed up.

[ybeard]

Blockbuster absolutely has stolen the Netflix ideas down to the last dotted "i"... They've copied the Netflix plan so well that their shipments of movies in my queue have also slowed to a crawl, just as they did when I was a Netflix customer.

[adam]

In case anyone is interested...

Netflix's Complaint: http://www.daledietrich.com/imedia/pleadings/Netflix_v_Blockbuster_(Complaint_April_4_2005).pdf

They are seeking treble damages (actual multipled by 3.) If they win blockbuster will not only have to pay major back royalties they will have to pay big $$$ on top of that.

Netflix's patents:

http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2F...450&RS=6584450

http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2F...lix&RS=netflix

They have another patent on the mailing packaging but its not an issue in this case.

[SCDVD]

Looking at this from the consumer’s point of view, I don't want to see Blockbuster lose. It's not because I like Blockbuster; it's because I don't want to see anything reduce the competition in the DVD rental market. Blockbuster got caught by surprise when Netflix came along. In fact they concluded that Internet DVD rental would fail. They were fat cats who felt they owned the DVD rental market. The "take no risk" political suck-ups in the company who did this "analysis" were looking out for their own personal interests. From their personal points of view, they felt that it would be unsafe for their own interests to cast a favorable opinion about online DVD rentals. They walked around their corporate sanctum belching quotes like, "All downside, no upside." They ignored the company's interest in favor of their own personal interests. The Blockbuster stockholders should find every one of these self-serving creeps and lynch them in the company parking lot at high noon!

This kind of inside company politics is illustrated very well in a humorous but all too accurate way in a recent FedEx TV commercial. In the commercial, a business owner or high-ranking manager is conduction a meeting where he announces in a very pompous manner that the company needs to cut costs and asks for ideas. A young man still not wise to corporate politics made a suggestion about using FedEx to save money. There was silence while everyone else in the meeting carefully watched the big shot manager for any clue to his reaction to the young man's suggestion. They wanted to gauge the reaction of Mr. Big Shot so they could react in seeming "spontaneous" support of Big Shot's reaction to the suggestion. Then the Big shot started to speak and all the kiss-ups in the meeting froze in rapt attention as if God himself was about to speak. Even though the Big Shot repeated verbatim the young man’s suggestion, they reacted as if it was all Big Shot’s idea and oohed and aahed at “his” idea. You have to see the commercial to appreciate the humorous cameo of corporate kiss-ass politics. It uses humor to illustrate an all too common reality in corporate politics. Blockbuster deserves to fail but for the consumer’s sake, I don’t want to see it happen. Without Blockbuster, Netflix will increase their prices quite a bit.

[NiteLite]

Isn't that the nature of business? It is about time they both raised their subscription rates anyways. The cost of doing business in America in the last year has gone sky high and without a rate increase the profit margin has been ever shrinking..

When will you people learn that all these business expenses are deductible! ( postage, mailers,, etc. jeez, take a simple accounting course.
Not directly @ you ROF just these posts in general about the pitiful companies having to pay higher postage rates for example...not going to happen. Deductible expense just like about everything else concerning .INC.
In fact with lower DVD costs they should be lowering their subscription prices.
Regards,
NL

[ROF]

Isn't that the nature of business? It is about time they both raised their subscription rates anyways. The cost of doing business in America in the last year has gone sky high and without a rate increase the profit margin has been ever shrinking..

When will you people learn that all these business expenses are deductible! ( postage, mailers,, etc. jeez, take a simple accounting course.
Not directly @ you ROF just these posts in general about the pitiful companies having to pay higher postage rates for example...not going to happen. Deductible expense just like about everything else concerning .INC.
In fact with lower DVD costs they should be lowering their subscription prices.
Regards,
NL

Understood but these are EOY write-offs and do not help with quarterly profits or offer the business a chance to recoup the business expense on the day it is incurred. This cuts into the the profit margin, which if you own a business, you want this to keep going up with each month you are in business. Usually the first few years, especially in small businesses, you get nada for profit and actually spend more then you make even when itemizing your deductions. A corporate business pays tax on their profits which is why they can claim these types of expenses. The more profit = more expenses - deductions. The cost of doing business increases with each and every cost increases for these supplies.

[adam]

When will you people learn that all these business expenses are deductible! ( postage, mailers,, etc. jeez, take a simple accounting course.
Not directly @ you ROF just these posts in general about the pitiful companies having to pay higher postage rates for example...not going to happen. Deductible expense just like about everything else concerning .INC.
In fact with lower DVD costs they should be lowering their subscription prices.

NiteLite, tax deductions offset your taxable income, they do not totally offset the expense you are deducting. That would be like a tax credit and business expenses are not credits. Say you spend $100,000 a year on shipping and are lucky enough to deduct 100% of this. (You can't always do this.) Let's say your tax rate is 50%. You've just saved yourself $50,000. (taxable income is $100,000 less and if not deducted you would have had to pay 50% of that more in taxes.) So you've still got $50,000 in shipping costs cutting into your profits. In short, each dollar that you can deduct only saves you a fraction of that in taxes. Its not a wash.

The costs of doing business are always fluctuating and everyone feels the effects, including corporations. When it comes to tax breaks, corporations actually have it worse than anyone else because they are taxed twice, once when they earn it and then again when they issue dividends.

Whether Netflix should lower their fees or not I won't say. But financial reports show that Netflix is doing very well these days so the price is probably set at about what the market will bear.

[gadgetguy]

Taxes are just another expense that corporations pass on to the consumer. All this expenses, deductions, credits crap is just a means to drive up the cost of goods and services without providing any benefit to the consumer.

[adam]

So who do I get to pass my tax expenses on to?

[gadgetguy]

Your clients.
Edit: I assume your rates are high enough to include whatever taxes you are charged.

[adam]

Hmm, I didn't actually expect you to answer that. My point was that everyone pays taxes.

[gadgetguy]

But only businesses can factor that into their income as an expense and adjust their rates/prices to compensate.

[ROF]

But only businesses can factor that into their income as an expense and adjust their rates/prices to compensate.

Which is exactly why I wrote:

Isn't that the nature of business? It is about time they both raised their subscription rates anyways. The cost of doing business in America in the last year has gone sky high and without a rate increase the profit margin has been ever shrinking.

[adam]

But only businesses can factor that into their income as an expense and adjust their rates/prices to compensate.

That's not how taxes work. You pay a fraction of every dollar you make to Uncle Sam. You can't make up your tax expense by charging more, because then you've just got to pay more in taxes, and at a higher percentage even.

[gadgetguy]

But that is exactly how Corporate taxes work. They aren't trying to achieve a dollar amount in profits, they are trying to achieve a profit margin percentage. To maintain the profit margin you have to account for all of your expenses and that includes taxes.

[adam]

Ok.

[TBoneit]

And when you are not efficient in keeping your costs down and have to raise your prices then your customers will go somewhere else that is efficient at keeping costs down. There is no loyalty but price these days as I see it.

[gadgetguy]

And when you are not efficient in keeping your costs down and have to raise your prices then your customers will go somewhere else that is efficient at keeping costs down...

Or to places that don't have the imposed expenses (or have smaller imposed expenses) to deal with.

[BobK]

There is no loyalty but price these days as I see it.

From the customer side there can also be loyalty to quality, customer service and other factors even though the price might be higher (blank TY disks are a good example).

Of course it works both ways- who is the company/corporation loyal to? The customer or the profit margin?

[gadgetguy]

Of course it works both ways- who is the company/corporation loyal to? The customer or the profit margin?

That's not an either/or question. You can't maintain either without being loyal to both.

[dman651]

Just my two cents!!!

I would like to see Blockbuster lose only because of what they did in the retail rental business. I run a small video store not far from a Blockbuster and was very successful, we were the first to rent DVD's and had a great customer base with them. Blockbuster refused to jump on the DVD band wagon till the studios literally gave them a base inventory of DVDs. It would of cost us a foutune to replace all our videos with DVDs. We could no longer compete and lost customers as such. We are still in business but it out of the joy of doing it and not the profits.

No company should be able to dictate a market all it does is hurt the general public in the long run. Look at Wal-Mart.

[canadateck]

general public? You mean the small guy,I'm on your side 100%. But thats the way business is these days.

[NiteLite]

Thanks Adam & ROF for the input and everyone else, just they seemed to reply directly to my point.
I'll just say that when doing a financial statement, ect. the liabilities are deducted from the assets before a profit or loss is declared. Almost all costs of doing business are allowed to be liabilities. Therefore before a taxable profit is declared the expenses are deducted.
In effect the corp does not really pay costs as they reduce taxable income.
Now, you have big Corps getting Gov't credits for nothing. Just a handout from the Gov't in the billions of dollars. Ex:, GM, Ford, almost all the big and small OIL companies and soooo many more. It's a freebie hand out credit.
Also you have corps making projections of income. If the dont meet those projections they get to declare a LOSS. Can you really conceive this?
You run a business. You say you will make a million dollars this year. You actually make one hundred thousand. Then you can deduct a loss of 900 thousand. It's crazy but the .INC's get to do this.
I'm just saying that if you think that business (other than small business) is paying taxes you are misled.
Also the company is not taxed twice. I know it's a quoted misnomer of becoming .inc'ed The entity corporation is taxed if they even pay taxes then the shareholders are taxed if dividends are declared. Two different entities. (debatable somewhat, yes).
Now lets also add the reopening of off-shore banking established by the present Admin. to which once again people and companies can simple hide their money out of the US and still not be taxable.
To sum up; big business is not paying taxes or at the very least only a minute amount of what they should be paying.
As proof, a recent unbiased study in Louisiana found that lower middle class and lower class workers were paying average of 17% in taxes, net. Corporations and millioniares were paying 3%.
The decietful accounting practices allowed for wealthy people and businesses are an atrocity. That's all I was trying to point out in my original post.
Yes, one of my minors is in accounting. Although I am not in the practice, it was interesting and worth the time to learn just how the system hands out to those that make the most and punishes those making the least to make it up. Nothing new for sure. Always been this way in my decades of experience.
Enjoyed the dicussion.
NL

[lordsmurf]

Also you have corps making projections of income. If the dont meet those projections they get to declare a LOSS. Can you really conceive this?
You run a business. You say you will make a million dollars this year. You actually make one hundred thousand. Then you can deduct a loss of 900 thousand. It's crazy but the .INC's get to do this.

This has bothered me for years. I want to vomit.