Legal Issues

by Mike Masnick

Netflix Sued For Violating Antitrust Law With Its Patents

from the who-to-root-for? dept

I'm pretty skeptical of most class-action lawsuits. They're often filed over bizarre claims, and the settlements almost always seem to enrich the lawyers a lot more than the "class." Sometimes, we've even seen the settlements seem more like marketing for the company being sued. That's not to say all class-action lawsuits are bad. In some cases, they can do a great deal for consumer protection. I'm a little bit torn over this latest class-action lawsuit in figuring out which side of the line it falls under. This morning, a lawyer involved in the case sent us a filing his firm recently made to initiate a class-action lawsuit against Netflix, claiming that the company has violated antitrust law by fraudulently concealing prior art related to the patents it's currently using to sue Blockbuster. We were surprised that Netflix went this route, after it seemed as the company was winning in the marketplace (easily) against Blockbuster and others -- and it seemed like the patent wasn't needed for Netflix to remain competitive. The filing, however, suggests that there may be more to this story, and that Netflix carefully used the threat of patent litigation over these two patents to push others out of the market. That may be difficult to prove, but what's more interesting is that the filing highlights prior art that Netflix clearly knew about, but which the company did not include on its patent applications. Patent law requires that you disclose any prior art in a patent application, and the lawsuit alleges that Netflix committed antitrust fraud by concealing the prior art.

Certainly, it makes for an interesting argument. Patents grant a government-backed monopoly -- which should get you around any antitrust violations. However, if that patent is obtained fraudulently, then I can see a pretty compelling claim that you've abused antitrust law. It would be interesting if other such cases start popping up (and, indeed, the lawyer who sent it to us said his firm is looking for additional patents to go after in this manner). It certainly is an interesting way to go about defeating dangerous and harmful patents, but really, if the patent system were working properly, this type of class-action lawsuit shouldn't even be needed. Either way, given the state of the patent system today, having one more weapon to go against dangerous, innovation-stalling, competition-blocking patents might just be a necessary evil.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    Shred303, May 18th, 2007 @ 1:05pm

    Patent Madness!

    Wait, Netflix has pattented the buisness process of renting videos through the mail? This is insane.

    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, May 18th, 2007 @ 1:05pm

    I see class action lawsuits primarily as a tool to punish certain behavior. They can end up being quite costly to the defendant. But you're right in that the individual litigants almost never receive any sort of compensation even if they win. If I was to join this lawsuit, it would be to penalize Netflix for patent abuse, not because I saw any chance of significant reward. Yay, a five dollar coupon.

    Also, I've been a member of Netflix' and Blockbuster's programs, and I far and away prefer Blockbuster.

    (When you add an apostrophe to represent a possessive to a word ending in 'x', do you treat it the same as a word ending in s?)

    reply to this | link to this | view in thread ]

  3. identicon
    The Daddy, May 18th, 2007 @ 1:19pm

    Re: Patent Madness!

    Netflix pwns face.

    reply to this | link to this | view in thread ]

  4. identicon
    InkChemist, May 18th, 2007 @ 1:22pm


    Good question A.C. Is it Netflix' or Netflix's? Let's start a trend and make it Netflix'x :)

    I'm actually surprised that this legal approach hasn't been used before on cases like Vonage, where, if I'm properly informed, there are people saying that the art in the Verizon patents was published by others as seminar notes at a conference some months prior to the patent filing and that those filing the patent were in attendance at the conference. I would love to see an outbreak of patent fraud suits.

    reply to this | link to this | view in thread ]

  5. identicon
    Patents, May 18th, 2007 @ 1:30pm


    Lets not forget that Netflix patented the Queue.

    reply to this | link to this | view in thread ]

  6. icon
    Derek Kerton (profile), May 18th, 2007 @ 1:46pm

    Finally, Something The Lawyers Will Like

    One of our problems at Techdirt is that we keep proposing changes to the patent system that would reduce the amount of work and revenue that goes to patent lawyers. So they troll here and abuse us in the comments.

    So this backwards approach (even submitted to Techdirt by a lawyer) is finally something that those of us here in favor of innovation, and those at some law firms in favor of more lawsuits, can both agree on.

    We have a system where people are rewarded for gaming the rules, and playing the system. We should change it such that there are penalties for trying to game the system.

    reply to this | link to this | view in thread ]

  7. identicon
    Anonymous Cow Herder, May 18th, 2007 @ 1:50pm

    Patents do not grant monopolies

    Patents grant the right to exclude others from making or using an invention defined by a set of claims at the end of the patent document. There is a very important legal difference between a monopoly sanction by the government and a right to exclude. Use of a patent known to be invalid to obtain or attempt to obtain a monopoly in a defined market is indeed a potential antitrust violation. A case entitled Walker Process established this principle.

    reply to this | link to this | view in thread ]

  8. identicon
    Anonymous Coward, May 18th, 2007 @ 1:59pm

    Netflix was awarded a patent in April 2006 that described the online DVD queue that its subscribers use to prioritize which movies they receive.

    This is a queue. Nothing more, nothing less. How the heck is this innovation? It is something that has been used for hundreds of years.

    So now, thanks to Netflix, you can use a queue for anything but DVD's.

    reply to this | link to this | view in thread ]

  9. identicon
    Anonymous Patent Infringer, May 18th, 2007 @ 2:08pm

    Re: #8

    Awesome. I have a row of movies (in DVD format) on my shelf, set up in the order in which I'd like to watch them. I await my threatening letter.

    reply to this | link to this | view in thread ]

  10. identicon
    rEdEyEz, May 18th, 2007 @ 2:36pm

    Netflix exposed

    The world just became a whole lot more difficult for Netflix.

    This is a bogus suit based on bogus patents, and ultimately they will pay, if in nothing else, in reputation and market share.

    I find it hard to believe that there isn't a hiearchical relational database that actually encompasses the patent system. Is it really that broken? (...with respect to prior art investigation)

    Where the hell is all of our tax money really the "patent" court lawyers?

    Sad. Public interest, indeed.

    reply to this | link to this | view in thread ]

  11. identicon
    Sanguine Dream, May 18th, 2007 @ 2:37pm


    Netflix got the patent in April 2006 and I started my Blockbuster Online account Dec. 2005 and I know I spent about 2 months thinking about which one I should sign up for. So depending on how long Netflix's (I'm pretty sure you add an " 's ") application was awaiting approval Blockbuster Online could be prior art.

    reply to this | link to this | view in thread ]

  12. identicon
    s2kdave, May 18th, 2007 @ 2:42pm

    For those of you with a TiVo

    Seeing that you're all NetFlix or Blockbuster fans I figured I'd let you all know about my blockbuster/netflix/amazon application to modify your queue from your TiVo.

    reply to this | link to this | view in thread ]

  13. identicon
    Paul Bucalo, May 18th, 2007 @ 2:50pm


    There are a couple of great in depth pieces about aQuantive at Behind the man behind aQuantive Microsoft to buy Seattleā€™s aQuantive

    reply to this | link to this | view in thread ]

  14. identicon
    InkChemist, May 18th, 2007 @ 2:52pm

    Re: Re:

    Sanguine - It takes a whole lot longer than 6 months to get a patent granted. Blockbuster may have started their use of the idea based on the Netflix patent application in hopes that the patent wouldn't be granted. It's done all the time.

    reply to this | link to this | view in thread ]

  15. identicon
    RonC, May 18th, 2007 @ 2:55pm

    These comments sound more like /. than TechDirt. If you read the patents you'll see that '381 is just a continuation of '450. What is claimed is a queue of customer selected items (DVDs) where the removal from the queue is constrained by item availability, items previously removed in some time period (MAXTURNS) and items currently out (MAXOUT). Unless your wife controls your viewing based on how many and how often, you are safe (actually, even if your wife does control your viewing, unless she is a computer, you are safe!).

    reply to this | link to this | view in thread ]

  16. identicon
    SPAM, May 18th, 2007 @ 2:57pm

    Re: Prescient


    reply to this | link to this | view in thread ]

  17. identicon
    RonC, May 18th, 2007 @ 2:59pm


    The '450 patent was filed on April 28, 2000, long before BB started offering their service.

    reply to this | link to this | view in thread ]

  18. identicon
    Cobarde Anonimo, May 18th, 2007 @ 3:31pm

    no innovation here

    I've read five patents, personally. Four had such obvious prior work that I think a good case for negligence could've been filed against both filers and the patent office.

    That would rather suggest that this kind of thing is very, very common.

    The other included actual innovation, but maybe not such unobvious innovation.

    reply to this | link to this | view in thread ]

  19. identicon
    RandomThoughts, May 18th, 2007 @ 4:01pm

    Mike, thats pretty funny that you are torn over the lawsuit on the patents. You hate both, so you don't know which way to turn. Kind of like the liberal actors when they didn't know which way to turn when the animal rights activists started protesting animal testing for AIDs drugs.

    reply to this | link to this | view in thread ]

  20. identicon
    Anonymous Coward, May 18th, 2007 @ 4:02pm

    Re: Re: sanguine

    Well the patent was awarded at that time, but it was pending earlier.

    reply to this | link to this | view in thread ]

  21. identicon
    larryJ, May 18th, 2007 @ 5:08pm

    Microsofts monopoly patents

    Microsoft was convicted of being a monopoly. This case covered a duration of behavior during which they aquired money and destroyed other companies. That illegal money surely paid for writing or buying code (and the ideas) turned in as patents. It also deprived other companies of making legal profit hurting or destroying their ability to create patents then, in the future and for some forever. Microsoft is like a bank robber who got caught, convicted then got to keep the money they stole and invest it in their business. And they use that stash of cash and patents going forward even more. That code, those ideas, those patents need to be confiscated and nullified or turned free.

    reply to this | link to this | view in thread ]

  22. identicon
    Joe Smith, May 18th, 2007 @ 5:49pm


    If the lawyers are looking for more examples of antitrust violations they should look long and hard at NTP which extracted $600 Million after paying a person who had prior art to keep them quiet.

    reply to this | link to this | view in thread ]

  23. identicon
    etrepetite, May 18th, 2007 @ 6:15pm

    Re: Patent Madness!

    It's my understanding they have a patent on that auto-updating queue.

    reply to this | link to this | view in thread ]

  24. identicon
    Javarod, May 18th, 2007 @ 7:45pm

    Ifn you want an inside look at class action suits, and want to hate them more, read 'The King of Torts' by John Grisham

    reply to this | link to this | view in thread ]

  25. identicon
    IT Outsourcing, May 18th, 2007 @ 10:56pm

    Netflix pwns face.

    reply to this | link to this | view in thread ]

  26. icon
    mermaldad (profile), May 19th, 2007 @ 5:54am

    Oh, the possibilities!

    The thing about this is that since the patent system has devolved to the point where filers are rewarding for writing patents that are overly broad, as TechDirt has pointed out many times. If some lawyer can figure out how to make money off of this type of class action suit, there is a gold mine's worth of patents to pursue.

    reply to this | link to this | view in thread ]

  27. icon
    Tsu Dho Nimh (profile), May 19th, 2007 @ 8:47am

    The business model dates from the 1700s!

    What Netflix "patented" is nothing more than the REALLY OLD business of the "lending library" or "subscription library". The only difference between Netflix and the British company Hatchard's is that Netflix uses a computer to maintain the requests and the queue.

    Hatchard's would mail books to customers and when the book came back, ship the next one. You had a list of the books you wanted on file with them. They even offered different plans, with expats in the colonies signing up for plans that dumped a hundred books or so every time a boat arrived, and those in London settling for the one book at a time plans.

    The first implementation of this plan in the New world was done by Ben Franklin, who was also the first supervisor of the Patent Office.

    reply to this | link to this | view in thread ]

  28. identicon
    Some one Else, May 19th, 2007 @ 11:41am

    It once again shows how pointless the US patent system is. It has to be re-done to something workable if any other countries (or even ourselves) are to take US patents seriously. Asking other countries to follow a US patent like this one (or playing with a cat with a laser pointer etc) is absurd.
    The basic business model Netfilix is using is older than the US constitution. Computers or no computers and the queue system Netfix has patented has been used by public libraries around the world for over 30 years for books, 20 years for CD's and probably more than 10 years for DvD's.
    The really inovative thing Netfix has done is charging people for the service. :-)

    reply to this | link to this | view in thread ]

  29. identicon
    Pat Price, May 19th, 2007 @ 3:54pm

    Re: Re:

    In reference to someone using BlockBuster online in Dec 2005, NetFlix filed their patent (7,024,381) on May 14, 2003. US patents are good for 20 years from the date of filing or 17 years from the date of granting, whichever is less. So, if BlockBuster did not offer their service prior to May 14, 2003 then the license that god gave NetFlix for owning queues stands until the patent is proved to be bad. The sad thing is that NetFlix can sue anyone for infringing if they are indeed infringing and can probably win. The question before a court will not be is the patent valid but only did the defendant infringed. The question of being valid would be settled in yet another suite that BlockBuster or someone else would bring against NetFlex. A particular patent troll (do a google search for Acacia) is right now suing thousand of companies for infringing because they claim that a web site is in reality a database (even though their patent does not mention the word web site) and they have a patent that says if you send software on a CD and the CD has a link that allows the user to click it and the software goes back to the parent site and obtains a second set of data that is displayed you have infringed. Crazy.

    reply to this | link to this | view in thread ]

  30. identicon
    Nasty Old Geezer, May 21st, 2007 @ 4:41am

    Throw them all out

    SOFTWARE PATENTS ARE OBSCENE. They violate the entire concept, and allow the patenting of an idea.

    Until the entire concept of a software patent is discarded, this sort of anti-competitve behavior will continue. It is the core of why the software companies are are all trying to become SCO, instead of actually making something useful and then doing it better than any of their competitors.

    Copyrights yes, patent no.

    reply to this | link to this | view in thread ]

  31. identicon
    Doug Richards, Jun 11th, 2007 @ 12:53pm

    Re: Re:

    Hi, I was interested in your comment re the prior art in some Verizon patents being published as seminar notes at a conference. Can you give any specifics about that? Thanks.

    reply to this | link to this | view in thread ]

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