April 7, 2006, 12:00 AM

Blockbuster says claims by Netflix are without merit

Firing back, Blockbuster says a Netflix suit is “an attempt to stifle competition” at a time when Blockbuster’s online business is growing. Blockbuster says it will defend itself vigorously. It has 1.2 million online subscribers vs. Netflix`s 4 million.

In an 8-K filing with the Securities and Exchange Commission, Blockbuster Inc. has stated it believes that claims filed in California federal court by Netflix Inc. earlier this week against Blockbuster’s online movie rental service are without merit and that it will “defend itself vigorously.”

The lawsuit is an attempt by Netflix to stifle competition, says Shane Evangelist, senior vice president and general manager at Blockbuster Online. “The timing of this lawsuit appears to confirm that Blockbuster Online has emerged as a competitive force in the online rental industry,” he contends.

Online DVD rental company Netflix has filed the patent infringement suit against Blockbuster, asking the federal court to shut down Blockbuster’s 18-month-old online rental service. The lawsuit also seeks unspecified damages. In the suit, filed Tuesday in U.S. District Court in the Northern District of California, Netflix alleges that Blockbuster Online violated two patents held by Netflix.

The first patent, granted in 2003, covers the Netflix business method of allowing consumers paying a monthly fee to select and rent DVDs from the company’s web site and maintain a list of titles telling Netflix in which order to ship the DVDs. The second patent covers the Netflix policy allowing subscribers to keep the DVDs for as long as they want without incurring late fees. That policy also allows subscribers to obtain new DVDs without incurring additional charges and to set or reset the order in which they receive the DVDs.

Netflix has more than 4 million subscribers while Blockbuster Online has 1.2 million subscribers.

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