Earlier today, the jury came back with a verdict in the CDN patent suit between Level 3 Communications (NYSE:LVLT, news, filings) and Limelight Networks (NASDAQ:LLNW, news, filings), declaring that Limelight did not infringe on either of the two patents. The jury did not declare either patent invalid, but simply said there was no infringement. Level 3 may still appeal the verdict and the appeals process could take a year or two, but this is a better result for Limelight than last year’s loss to Akamai (NASDAQ:AKAM, news, filings) with a $45M payout that is still under appeal.
This is a big victory for Limelight. It may not wipe out all the uncertainty hanging over them, but it does give investors a light at the end of the tunnel. There are many out there who have felt the company was simply doomed, but a pathway to survival is now visible: don’t lose the appeal to Level 3, and finish re-designing the network not to infringe in Akamai so even if that appeal fails the cash outlay is survivable. That increasing clarity makes it much easier for a buyer to swoop in and take Limelight out, a network operator for example.
A few weeks ago, Dan Rayburn made the case that Level 3 and Limelight should settle. I didn’t think they would, but maybe now the time is right. Does Level 3 really want to pay for this appeals process during a horrible economy where their cashflow levels are critical? I doubt it. And Limelight would certainly like the whole thing to go away immediately rather than years later. Perhaps a variant on Dan’s proposal might work now, although obviously with the jury verdict the balance would tilt toward Limelight. Level 3 has a deep patent portfolio, perhaps Limelight might license some items to increase its own defense in the future. And they do need IP transit, a strategic purchase as part of a settlement might go a long way.
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This is HUGE news. Obviously very good for LLNW, but more importantly, this is a devastating blow for LVLT.
They dropped $135M on Savvis POS CDN for one reason only – Patents. Sure they are making decent revenue already on CDN and caching content on the edge keeps it off of their backbone, but their (perhaps delusional) end game is to be the number 1 in 2 – 3 years. They certainly aren’t going to out maneuver AKAM on the tech side, so the only pieces they have to play with is low price (no transit costs!) and litigation. If their 7 year old patents are worthless – or even worth ‘less’ than they thought – good luck with being anything more than a number 3.