Earlier today, Hacking Netflix posted a link to the latest Netflix patent (#7,024,381). Filed in May of 2003, but not issued until yesterday, the patent covers an "approach for renting items to customers" and forms much of the basis for the infringement suit they filed yesterday against their online rival Blockbuster.
It makes for a pretty dry read - "customers specify what items to rent using item selection criteria separate from deciding when to receive the specified items" - as you might expect from a legal document explaining the obvious.
Ah, yes. The obvious.
There are some folks today who claim to be outraged - positively outraged - that a business model such as this could be patented. It's just common sense, ferchrissakes! It's so obvious!
Of course, if it were really so damn obvious, you or I would have thought about it and patented it ourselves.
"It seems obvious because Netflix has made it obvious," Netflix spokesman Steve Swasey says, as quoted in the LA Times. "We've filed suit to protect our invention. Netflix has built a better mousetrap and Blockbuster copied it."
Uh, no, it's not.
But that's only one small aspect of the operations for which Netflix successfully sought a patent. Even a cursory glance at the patent shows that it's much more complex than that... it's not simply about sticking a naked DVD into a thin red envelope.
Anyone can send a DVD through the mail. But Netflix invented a unique methodology for doing so and for all the back-end operations that support that simple act. The United States Patent and Trademark Office deemed it worthy of not one, but two, patents.
Who are we to argue?
Much has been made about the terms "Max Out" and "Max Turns" which are central to the patent issued yesterday. The former refers to "the number of items that may be simultaneously rented to customers," while the latter refers to "a specified number of item exchanges" that "may be performed during a specified period of time."
Those who are still angry at Netflix over the throttling debacle, have shouted "Gotcha!" loudly and now claim that "Max Turns" is proof positive that Netflix knew all along it would throttle and that is in fact what "Max Turns" refers to, once you crack the code.
Well, not so fast. It actually doesn't say anything of the sort.
What it says is that "Max Out" is a method by which a company can rent "unlimited" DVDs (limited only to the number allowed in circulation at one time) and that "Max Turns" is an alternate method of renting, whereby a customer is allowed a set number of rentals ("turns") during a specified period. Netflix currently offers just such a plan at $11.99 monthly for two DVDs out at a time, with a maximum of four DVDs per month.
Rest assured, Netflix has not been granted a patent on throttling!
Of course, we know they'll continue to throttle; we know they probably have an algorithm that governs it. But it doesn't look like the recipe for that secret sauce is in patent #7,024,381.
What is indeed in there that I haven't heard anyone talk about yet is the ability to allow an override to the "Max Turns" limit, so a subscriber can exceed his or her cap in any given month by paying an additional fee.
What's also in there - surprise, surprise - is yet another twist on the "Max Turns" formula.
Customer 102 may not use all of its allotted turns during a specified period. According to one embodiment, customers lose unused turns during a subscription period.
For example, if customer 102 has a "Max Turns" limit of four item exchanges per month and only makes two item exchanges in a particular month, then the two unused exchanges are lost and cannot be used. At the start of the next month, customer 102 would be entitled to four new item exchanges.
According to another embodiment, customers are allowed to carry over unused turns to subsequent subscription periods.
For example, if customer 102 has a "Max Turns" limit of four item exchanges per month and only makes two item exchanges in a particular month, then the two unused exchanges are lost and cannot be used. At the start of the next month, customer 102 would be entitled to six new item exchanges, two from the prior month and four for the current month.
Much like cell phone companies that introduced "rollover" minutes to differentiate their product, this may well be the next enhancement to certain Netflix plans... the ability to "carry over" unused rentals.
In fact, that's exactly what we suggested a couple of months ago, when writing about the throttling controversy.
Hey, wait a second... maybe all this stuff is obvious.
Update: Analyst Michael Pachter predicts Blockbuster will ultimately emerge victorious: "My professional opinion is really more colored by Netflix's repeated public comments about how inferior the Blockbuster online offering is," Pachter told the E-Commerce Times. "If Blockbuster stole Netflix's process, then the two offerings would be identical."