Vidtailers escalate battle

Blockbuster goes after Netflix in countersuit

It’s getting ugly.

Blockbuster on Tuesday took aim at Netflix, countersuing the Netco and accusing it of monopolizing the online rental market.

Netco filed suit against Blockbuster in April after winning a second patent protecting its method of allowing consumers to queue DVD preferences and then shipping those DVDs by mail.

But in a blistering 39-page filing with the federal District Court in San Francisco, Blockbuster alleged that Netflix deliberately concealed evidence of previous online rental systems from the U.S. Patent and Trademark Office in applying for its original patent.

Blockbuster’s attorney, Marshall Grossman, said the company seeks damages for the effect of the lawsuit on Blockbuster’s biz, as well as legal fees, in addition to the invalidation of the patents.

Vidtailer said both patents were invalid because the company did not disclose to the patent office what’s known as “prior art” — or the previous rental systems. But even without that, Grossman said Blockbuster had a case because Netflix was trying to “monopolize this space on the Internet.”

According to a timeline included in the Blockbuster filing, Netflix was itself under threat of patent-infringement litigation from NCR Corp. over an online rental system well before its first patent was granted, but failed to disclose NCR’s claims to patent examiners.

Using notably direct language, Grossman told Daily Variety that the company believes the patents were baseless.

“Netflix did not invent the computer, they did not invent the Internet, but they do appear to want to control it,” he said. Referring to the patent for the queue system, he said, “Netflix wants to so corner the Internet that a kid would be in jeopardy if she submitted a wish list to Santa Claus.”

Netflix rep did not return a call Tuesday evening.

Blockbuster said it was fighting on behalf of any e-commerce company engaged in a similar system but that it has not yet decided to bring on other plaintiffs to its countersuit.

The vehemence of Blockbuster’s response, and the addition of the antitrust counterclaims, reflects the high stakes for Blockbuster. Without a significant online component, the company could be in serious trouble and likely would continue the earnings slump in which it has been mired over the last few quarters.

That slump was caused, in part, by Netflix, which has previously stated its desire to eliminate the physical rental biz, and its patents could do the same to competitors in the online rental arena.

No hearing date has been set for the lawsuit.