Limelight Networks: Friday Stock Spike Pinned On Positive Lawsuit News

Last Friday I wondered what was up with the 27% spike in Limelight Networks’ (LLNW) stock price. I thought it was an institutional investor piling on some shares, since the company’s stock debuted at about $18, zoomed up to nearly $22, but had fallen back down to $15 before the 27% spike.

Yesterday, Paid Content reports on a Light Reading post that reveals that in preliminary hearings, a court sided with Limelight (and against arch competitor Akamai (AKAM)), thus explaining why the stock shot up on Friday: "The court said that Akamai was trying to patent the process, not the technology and rejected the claim."

As a result of the ruling, 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.

Rafat Ali added: “The case is complex, so if someone else understands the ruling better, let us know.”

I have yet to read the 29-page report, but will sometime this week if I have time. But the premise might not be that complex if you apply it to something simpler.

First off, I’m not a lawyer (again). Second, I’m not about to say that you cannot patent a process. I’m sure you can. I guess it depends on what the process is. From what I know about CDNs, I am not sure what CDNs do is patentable. I’ve not given it that much thought… but then again, I’m no brainiac from MIT.

But, if you take a step back and consider that a patent is intellectual property that is not fundamentally different than copyright, then you can say that “while published works are copyright”, the process by which you print a document is not. This is probably simplifying it too much, but it does apply to the Akamai vs. Limelight Networks a bit. The judge, I would presume, probably feels that the process whereby (using the same example)

a) ink gets applied to paper to form words and sentences and then
b) gets printed on a sheet of paper,
b) gets bound and printed

does not constitute a copyrightable asset. I’m no electric engineer (or whomever does what LLNW and AKAM do) but that makes sense.

If you look at this in a different form of IP, say trade secrets, you can apply the same rationale: Take Coca-Cola (KO) versus Pepsi (PEP), or McDonald’s (MCD) versus Burger King (BKC). Surely if McDonald’s uses a certain type of meat, or develops a super duper oven etc., or decides to have 3 people working side-by-side to assemble the world’s greatest burger, these are trade secrets that a McDonald’s employee might not be allowed to use at BK if they were to leave from one to another, but if BK too wanted to change its process of putting the patty on the bread, etc., ie. apply the same process, I’m not sure there is anything non-kosher.

Now, leaving food and beverages and returning to, well, whatever it is that Limelight produces: if the folks over at Limelight Networks were hiring former employees of Akamai and these people were violating any competition or confidentiality agreements, then a court could try to prevent these people from working at LLNW, but even then, it would not be able to shut down the Arizona-based company altogether.

According to a GigaOm post when it was filed,

Court documents show that, the lawsuit was filed in the US District Court in the State of Massachusetts in late June 2006. MIT and Akamai allege that Limelight is infringing on Patent # 6,108,703 and patent # 6,553,413. Both patents were issued to MIT and are licensed exclusively to Akamai.

So, what processes are patentable, well, I’m not sure if that’s even a word, let alone the question I ask… but for now, all I’ll say is this: The risk with lawsuits, as I’ve written here before, is that you can blow your false sense of security by over-extending your legal right…

Anyway, I’m not a lawyer to take this all with a grain of salt, but the venerable readers of this blog might trust my interpretation of legalese and its translation into English… but we won’t go there.

Note to Limelight: I’ll send over my bill for legal advice first thing tomorrow morning…

Disclaimer: I’m not a lawyer, I just think that I am. And, I own shares in LLNW

LLNW 1-yr chart:

Comments

[rob.harrison:]

Basically the current ruling in the Court Decision which has caused so much comment is only a small step on the road to a victory by either Akamai or Limelight. Essentially Akamai has sued Limelight for the infringement of three (not two) patents. The patents have been validly granted by the US Patent Office and Akamai has already enforced them against other companies (e.g. Speedera). This decision is what is called a Markman Order. Basically the judge has heard submissions from both sides about what the patents really mean and tried to sort out the legalese and bumpf from the true facts. The judge has decided what certain points of the claims mean - where those meanings are in dispute between the two parties. It does seem from the decision that Limelight came out on top and that Akamai may have more difficulty in arguing that Limelight infringe their patents - but there is still potentially a jury trial to come.

What Akamai have NOT patented is the concept of the CDN itself. They have tried to patent various aspects associated with the CDN - and indeed Limelight have also got a few patents themselves on this.

So the celebration is possibly a little too early. It may be good news for Limelight - and it certainly allows them to assess their defence, but it is not all over yet.

2007 Jul 04 04:34 PM

[Ashkan Karb...:]

Rob, thanks for the clarification. It's going to be interesting, though I wonder if that increases the chances of a settlement...

2007 Jul 04 11:45 PM

[rob.harrison:]

Given Akamai's record on patent infringement litigation (RIAA; Speedera), they have settled litigation very much on their own terms. Limelight have defended themselves very vigorously in this matter and I would expect that the initially offered settlement terms (if any) would have been somewhat unfavorable. The question is probably now whether either side wants to settle. It may be in Akamai's interests to continue the case and Limelight may feel its position justified. The best thing to do would be to settle - it is good for the marketplace to have alternative CDN solutions offered and management time would be locked up in the legal battle rather than in the marketplace.

2007 Jul 07 02:06 AM

[rob.harrison:]

Currently both parties are in so-called discovery mode in which apparently over 450,000 pages have been exchanged. They are requesting an extension of time until the end of the year for completing the discovery. Court has set a status hearing conference on 8 August.

2007 Jul 26 02:15 AM