Limelight Dims on Patent Worries

Content delivery network (CDN) Limelight Networks Inc. (Nasdaq: LLNW) "has a tough road to hoe" [sic] in a patent litigation suit filed by chief rival Akamai Technologies Inc. (Nasdaq: AKAM), says one legal expert.

In a conference call held with Cowen and Co. analyst Tom Watts yesterday, UCLA law professor and patent expert Doug Lichtman said he believes the likelihood of Akamai prevailing in its patent litigation against Limelight stands at around 80 to 85 percent.

The conference call was held ahead of what Lichtman expects to be the first major milestone in the case, which will be its Markman ruling. In patent litigation, the Markman decision defines what the patent means and how it will be judged throughout the rest of the case.

The companies had a Markman hearing on May 17, and a decision on the hearing usually takes place one to two months afterwards. That means the Markman ruling could come "any day now," Lichtman says.

The Markman ruling is usually a good indicator of the final outcome of the case. "Typically, once we get a Markman result, cases settle -- 85 percent of cases settle once the parties know what the judge thinks the patent means. That's how important a Markman result is," Lichtman says.

However, in this case, settlement appears unlikely. Akamai has a history of going the distance in patent litigation disputes. In 2001 and 2002, the company filed patent infringement lawsuits against CDNs Digital Island and Speedera, respectively. (See Content Networks Spark Legal Fireworks.)

Akamai settled its litigation with Speedera, and ended up buying the smaller competitor as a result. Digital Island, on the other hand, was bought out by Cable and Wireless plc (NYSE: CWP), which later filed for bankruptcy and ended up selling the content delivery assets to Savvis (Nasdaq: SVVS). Those assets were sold again to Level 3 Communications Inc. (NYSE: LVLT) earlier this year. (See Savvis Acquires C&W US Assets, Will Savvis Sell Its CDN?, Level 3 Spends $135M on Savvis CDN, and Level 3's CDN Story Rides on Fiber.)

"I don't think this case settles, because I don't think there's much room for settlement in this case," Lichtman says. "I think Akamai is in this to crush Limelight, to put them out of business, both to shut down Limelight and to send yet another warning shot to the other potential competitors out there that Akamai plays hardball and tries to crush the competition."

While the Akamai-Limelight patent litigation isn't expected to be seen in the courts before next year, much will depend on how broadly the judge views the patents in question.

"Limelight wants to make sure Akamai's patent is read narrowly. They want the patent to recognize Akamai's actual system, but they don't want it to be read more broadly than that," Lichtman says.

But, he opines, "Limelight's arguments are weak... This is one of those rare cases where there is a much stronger position that is apparent upon reading the brief."

That could be bad news for Limelight and for its new investors. Upon going public earlier this month, Limelight's stock traded as high as $24.33, well above its $15.00 offer price. Its share price has since declined. (See Limelight Files for IPO, Limelight Raises IPO Price, and CDNs Show Strength.)

Limelight shares traded down $0.37 (2.38%), to $15.20, in mid-morning trading, after falling 9 percent yesterday. Meanwhile, shares of Akamai traded up $0.15 (0.30%), to $49.35 this morning.

Representatives from Akamai and Limelight could not be reached for comment.

— Ryan Lawler, Reporter, Light Reading

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