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Netflix says granted patent on DVD rental service


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#1 of 13 OFFLINE   Jeff Gross

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Posted June 24 2003 - 08:07 AM

Found this article on Yahoo! Finance. It will be interesting to see what the result of this is. I'm a big fan of NetFlix, but I'd hate to see them drive their competitors out of business. I think their service has gotten much better lately and felt that increased competition was the reason.


Netflix says granted patent on DVD rental service
Tuesday June 24, 1:25 pm ET
By Ben Klayman

CHICAGO, June 24 (Reuters) - Netflix Inc. (NasdaqNM:NFLX - News) said on Tuesday the U.S. Patent & Trademark Office issued the company a patent that covers its online subscription-based DVD rental service, but it has not decided what action to take against rivals in the growing market.

Shares in the Los Gatos, California-based company rose as much as 11.5 percent in early trading. Analysts said the increase was likely due to eased investor concerns about the sustainability of Netflix's business in light of the patent.

"This would give everybody the impression that there's ... some level of protection of future cash flows to the company," said Delafield Hambrecht analyst R.J. Jones, who has a "hold" rating on Netflix stock. "For the near term, this provides a way for them to defend against competition."

Jones, who does not own stock in the Netflix and whose firm does not do banking for the company, said Netflix will likely take some action against competitors, whether it be lawsuits to drive them out of business or seeking royalties. Netflix filed its request for a patent for its business process in 2000, he said.

A Netflix spokeswoman said the company has not contacted competitors, including Wal-Mart Stores Inc. (NYSE:WMT - News) and Blockbuster Inc. (NYSE:BBI - News), and has not decided whether to pursue legal action.

"We have not decided on what the next step is," Netflix spokeswoman Lynn Brinton said. "We are focused simply on executing in the market place, where we feel the battle for market leadership is going to be won."

Netflix's options include suing for patent infringement, licensing the patent to rivals or doing nothing, said Michael Epstein, a New York City intellectual property attorney.

A likely defense of any rival would be the obviousness of the process, Jones said. Netflix also could pursue action against small rivals first before turning to Wal-Mart and Blockbuster, he added.

Netflix is the leading U.S. online DVD renter, commanding about a 95 percent share of the market. It makes its money by charging a monthly fee and directly shipping DVDs to customers, who make their choices on the Internet.

A Wal-Mart spokesman said the Bentonville, Arkansas-based company was unfamiliar with the patent grant. It first outlined its push into the hotly contested DVD segment last fall.

Analysts have seen Netflix as particularly vulnerable to the world's largest retailer, whose size and scale could give it more clout. It charges almost $19 a month to rent as many DVDs as customers like but no more than three at once.

Netflix, launched in 1998 and sporting more than 1 million subscribers, allows customers to rent as many DVDs as they want for the monthly fee, with three movies out at a time. Customers can keep the DVDs as long as they like and they are delivered directly to the subscriber's address via first-class mail.

A spokesman for video rental chain Blockbuster said the Dallas-based company had not seen the patent and declined to comment immediately. It purchased a DVD rental company last year and relaunched it as filmcaddy.com in the fourth quarter.

Stock in Netflix rose as high as $23.98 in early trading and was still up $1.61, or 7.5 percent, at $23.1 in afternoon trading on the Nasdaq.

#2 of 13 OFFLINE   DaveGTP

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Posted June 24 2003 - 02:34 PM

Ahh. So quickly does the internet startup turn into the monopolistic giant. Apparently 95% market share isn't good enough. Posted Image Hope this gets put down or something, or there goes my wonderful Greencine.com account.
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#3 of 13 OFFLINE   JohnRice

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Posted June 24 2003 - 06:02 PM

How on earth is a patent granted for online DVD rentals? That's the most absurd thing I have ever heard. Even if it is only for the membership approach, it's completely stupid.

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#4 of 13 OFFLINE   Dave Gorman

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Posted June 25 2003 - 09:49 AM

Quote:
A likely defense of any rival would be the obviousness of the process
Tell me about it.

Quote:
I'm a big fan of NetFlix, but I'd hate to see them drive their competitors out of business. I think their service has gotten much better lately and felt that increased competition was the reason.
Agreed. I would hate to see Netflix go the way of Microsoft.
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#5 of 13 OFFLINE   DeborahK

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Posted June 25 2003 - 10:41 AM

I agree that granting such a patent would be totally stupid, but maybe patents are simply granted and it is left to the courts to sort out what is a legitimate patent and what is not. I don't see much that could be defended here. After all, there used to be mail order and internet vhs rentals before there was DVD and some of the other on-line DVD rental companies have been operating for some time without any of these claims being raised. To me it's like a Von's or Ralph's filing for a patent on the grocery store and then trying to drive all the competition out of business. If this goes to court they deserve to lose in a big way.

Deborah

#6 of 13 OFFLINE   Matthew Todd

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Posted June 25 2003 - 10:43 AM

It really depends on what the patent "claims." Does anyone know the patent number? It can be looked up by number at www.uspto.gov

Matt

PS-I tried a search for "netflix" and turned up nothing.
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#7 of 13 OFFLINE   Jeff Gross

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Posted June 26 2003 - 02:00 AM

U.S. Pat. No. 6584450

According to one press release, it covers "the methods it uses to log customer requests and track checked-out movies."

#8 of 13 OFFLINE   Dave Gorman

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Posted June 26 2003 - 03:00 AM

Quote:
the methods it uses to log customer requests and track checked-out movies
I didn't read the patent, but "the methods it uses" doesn't amount to any more than a database, does it? This whole "patent" business is sounding sillier all the time...
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#9 of 13 OFFLINE   DeborahK

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Posted June 30 2003 - 08:25 AM

Check out this story at cnn.com:

http://money.cnn.com....lweg/index.htm

Deborah

#10 of 13 OFFLINE   Dennis Nicholls

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Posted July 01 2003 - 08:24 AM

My goodness, Hickman Palermo et al. charged them for 100 claims......:b www.hptb-law.com


Quote:
but maybe patents are simply granted and it is left to the courts to sort out what is a legitimate patent and what is not


That's not the way it is in the US, although there are a few countries that "register" patents. Here in the US we "examine" patents against a database of prior art. Examiners are specialists in a given subject matter and compare the applications against their own search of the prior art database. They usually flunk the application on the first pass, and the applicant's rep. has to argue or modify the claims to "get around" the cited references. Once a patent is granted in the US, it is presumed valid in the courts, and may only be deemed invalid with very good evidence. Although in the case of US 6,584,450 there are only 2 US refrences and a JP reference along with what was probably supplied by the applicant's rep. The entire case file for any patent is available from the PTO (and 3rd party vendors) for about $150 if you are interested.
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#11 of 13 OFFLINE   DeborahK

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Posted July 01 2003 - 08:46 AM

Dennis,

Thanks for the patent law lesson.

Deborah

#12 of 13 OFFLINE   Holadem

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Posted July 01 2003 - 09:34 AM

Quote:
My goodness, Hickman Palermo et al. charged them for 100 claims......:b

Hickman Palermo Truong & Becker LLP ... San Jose, CA

Dennis Nicholls.... Patent Attorney.... San Jose, CA

Something you wanna tell us Dennis? Posted Image

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#13 of 13 OFFLINE   Dennis Nicholls

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Posted July 01 2003 - 09:40 AM

I have never been associated with the firm of Hickman Palermo et al. LLP, although I do know Chris Palermo and Bobby Truong socially. If you look me up on the PTO list of registered attorneys you will find I work for a small semiconductor company.
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