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Limelight Shares Rise on Patent Ruling

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News Analysis
Light Reading
6/29/2007
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Limelight Networks Inc. (Nasdaq: LLNW) shareholders breathed a huge sigh of relief after the content delivery network (CDN) received a positive ruling in the patent infringement lawsuit filed against it by competitor Akamai Technologies Inc. (Nasdaq: AKAM).

As a result, shares in Limelight rose $4.21 (27.04%) to $19.78 on the day, after touching an all-time low of $15.13 earlier in the trading session.

Robert Stimson, analyst at W.R. Hambrecht & Co. , believes the stock rose on "a lot of short covering," after U.S. District Court judge Rya Zobel issued a preliminary ruling in the case.

According to Stimson, the court rejected the notion that Akamai could patent the way files were delivered over the Internet.

"What happened was Akamai was trying to patent the process, as opposed to its technology," Stimson said. "And the judge said, 'That's not a process you can patent.' "

That decision touched off a 20 percent jump in the stock price shortly after 2 p.m., when news of the ruling became public. Stimson believes much of this jump came after short sellers that had expected a negative ruling by the court were forced to cover their positions.

Expectations of a negative ruling were possibly exacerbated by a research note issued yesterday by Cowen and Co. . analyst Tom Watts. In that note, Watts quoted UCLA law professor and patent expert Doug Lichtman as saying Akamai had an 80 to 85 percent likelihood of winning the patent suit. (See Limelight Dims on Patent Worries.)

Merriman Curhan Ford & Co. analyst Colby Synesael believes Limelight stock was also being unfairly penalized due to the patent litigation. "With the Vonage and Verizon litigation, there's a fear that patents are becoming more important."

"Now that we have some clarity on the issue," Synesael says, Limelight's stock can trade at a fair value.

— Ryan Lawler, Reporter, Light Reading

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