Netflix stock soared more than 6% Tuesday after the company said it has received a broadly worded patent for its online subscription film-rental service that apparently would cover systems in use by competitors such as Wal-Mart and Blockbuster.
The patent refers to the subscription rental of videogames and music as well as movies. It covers subscription plans based on allowing a maximum number of items to be out at any given time as well as those based on permitting a maximum number of exchanges during the rental period.
Although the patent primarily describes a system for Internet ordering and delivery through the mail, it claims to cover all methods for placing orders through a subscription program and all modes of delivery, including in-store subscription services.
“In the foregoing specification,” the patent states, “the invention has been described as applicable to an implementation anticipating Internet-based orders and mail or other long-distance delivery of the items. … However, the same invention may be applied in a more conventional video, games or music rental-store setting, where subscription customers may be allowed rentals of a specified number of movies, games or music selections at any time and/or in one subscription period, without rental return due dates, in exchange for a periodic rental subscription fee.”
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The broad language of the patent would appear to apply to the online DVD rental service recently launched by Wal-Mart Stores, as well as the in-store game rental program launched by Blockbuster. The patent could be critical to Netflix’s efforts to fend off competition from its better-heeled rivals.
Earlier this month, Wal-Mart lowered the monthly fee for its service to be more competitive with Netflix.
Game for expanding
Also this month, Blockbuster announced the national rollout of its in-store game subscription service. It recently expanded its test of a DVD subscription program using a combination of online and in-store pickup and return options.
Wal-Mart officials were not available for comment.
A Blockbuster spokesman said the company had not seen the patent so could not comment on its specific claims. He added, however, “we can’t imagine there’s a patent out there that would prevent us from serving our customers in the best possible way.”
There was no immediate word on whether Netflix planned to pursue claims against Wal-Mart or Blockbuster. It could also choose to press claims against any of a handful of smaller companies offering online subscription rentals modeled on Netflix.
In a statement, Netflix general counsel David Hyman said, “Our team has focused their efforts on innovation to better serve our customers and on enhancing our intellectual property. We’re gratified that the Patent Office has recognized what a leap forward the Netflix subscription service is. However, we know that great companies are built by providing an outstanding consumer experience, and that is our primary focus.”
Netflix stock closed Tuesday up $1.35 at $22.85.