Tech Shout!

Netflix is trying to shut down competitor Blockbuster Online by dragging the company to a federal court in Northern California. According to Netflix, its biggest rival is engaged in patent violation and is asking for an order to stop Blockbuster from allowing online rentals.

Netflix holds two patents surrounding online DVD rental. The first was awarded in 2003 and includes the concept of the automatic queues, which customers add to from the company’s library and then receive movies in a customisable order of preference.

The second patent was awarded on the day of the lawsuit, and covers the method that allows Netflix subscribers to keep the DVDs for an unlimited amount of time, and “to obtain new DVDs without incurring additional charges and to prioritize and reprioritize their own personal dynamic queue–of DVDs to be rented,” the lawsuit reads.

In mid-March, Blockbuster CEO John Antioco said that online rentals would expand to 20 million households by the end of the decade, with in-store revenue falling some 25 percent during that same time period. Thus, Blockbuster’s online component has become increasingly important.

Over a quarter-billion dollars has been invested in the service, and according to sources the selling of Blockbuster Online subscriptions has become the most important issue in the company’s stores, even above in-store rentals. Some locations are expected to sell as many as four subscriptions per week or more, with repercussions for stores that under perform.

While that number may not seem like a lot, across Blockbuster’s 6,000 plus locations it adds up to about 120,000 new subscribers per month for the service.

Blockbuster Online currently has one million subscribers, a quarter of Netflix’s 4.2 million customers.