Level 3 and Limelight Should Settle Patent Suit, Here's How

On Monday, in the Eastern District Court of Virginia, the Level 3 and Limelight Networks patent suit got underway. While this is only the start of what is expected to be a long and drawn out legal proceeding, I think Level 3 and Limelight Networks should come to terms and end the suit.

As a company, Level 3 is in a very different position today than they were almost two years ago when they first notified Limelight about the patents they control from the SAVVIS acquisition. Two years ago, Level 3's stock price was around $7 and they had a market cap of almost $10 billion. Today, their stock is under a dollar and their market cap is under $2 billion. Times have changed, the economy has gotten worse and companies are now doing everything they can to cut costs. 

Like all companies, Level 3 is under a lot of pressure in the New Year to increase sales, but they also have a lot of debt to worry about. The telecom industry could take a big hit in 2009 and one would have to think that Level 3 will raise more money as soon as market conditions allow. In my opinion, the last thing Level 3 needs right now is to be spending money, time and resources on a patent suit with Limelight. Even if Level 3 were to win the suit, the process would most likely take years with all the appeals and it's not as if Level 3 would get a lot in the way of damages when compared to the rest of Level 3's total yearly revenue.

Meanwhile, Level 3 spends millions on the suit, ties up executives and can't spend every waking second possible working to improve the rest of their business. Any company engaged in a lawsuit is always distracted in some way from focusing 100% on their customers. Not that the suit helps Limelight Networks either, which is now spending money and time on two suits, the other being from Akamai. The difference however with the Akamai suit is that Akamai and Limelight are a lot more similar in terms of services offered than Limelight and Level 3 are. Level 3 is a carrier and as a result, gets the majority of their revenue from other services outside of similar CDN services offered by Limelight. Level 3 has a lot less to lose with Limelight than Akamai does.

In addition to Level 3 and market conditions changing in the past two years, the technology being debated has changed quite a bit since that time as well. Much of the Level 3 suit is talking about very generic technology and in my opinion, language that could be debated forever. My impression is that when Level 3 filed the suit, it was based on their assumption and interpretation of how they thought the Limelight Network was operating at the time. But compared to two years ago, Limelight is an entirely different company from a technology and services standpoint. Much has changed and I wonder just how much of the patents in question are even relevant to Limelight's offering today.

Like any company, Level 3 wants to protect their patent portfolio and enforce what they believe to be infringement on Limelight's part. But at the same time, I think Level 3 has to weigh what can be gained in the long run, by what can be lost in the short term. Unless a settlement is reached, Level 3 is not going to see any money anytime soon, and could lost the case and never see any money at all. Meanwhile they spend their own money and time on the suit and can't spend that time on improving their business in other ways. It's a bad time for Level 3 to be doing anything other than focusing 100% on their business.

So how could Level 3 and Limelight settle the suit? Limelight buys a lot of transit, one of the core services offered by Level 3. Level 3 could come to some kind of agreement to drop the suit against Limelight if Limelight purchased a certain amount of transit from them each year. I don't know what percentage of transit purchased by Limelight is from Level 3, but I'm sure it is a number that could be greatly increased. Level 3 would get immediate revenue, would cut the millions they are going to spend this year on the suit and could focus their efforts on other aspects of their business. And with Level 3 offering other services Limelight purchases, like co-location, one could make a reasonable argument that Level 3 could sell Limelight other products outside of just transit. I don't think it's that far fetched of an idea.

While I have no knowledge if any such discussion is taking place amongst Level 3 and Limelight, we are at a point in business where all companies are looking at ways to cut costs, increase revenue and focus their efforts on strengthening their core business, not spending time on things that are distractions. Level 3 could accomplish all of these things by thinking about other ways to solve the patent disagreement outside of being engaged in a multi-year, multimillion dollar suit.

Related Posts:

- Judge Denies Limelight's Motion For Summary Judgment In Level 3 Case

- Details From The Markman Ruling In Level 3 and Limelight Networks Patent Case

Judge Denies Limelight's Motion For Summary Judgment In Level 3 Case

During the holidays, on December 29th, the Judge denied Limelight's motion for a summary judgment in their patent suit with Level 3 and stated the case will still go to trial. If you want to get a good overview of the patents in dispute, without too much legal mumbo jumbo, the summary judgment document details what's being argued by both sides.

In other patent suit news, while it was expected that the Judge in the Akamai and Limelight case would issue a ruling before the New Year, no ruling has yet to come out. When it does, I will post it as soon as I get a copy of it.

Details From The Markman Ruling In Level 3 and Limelight Networks Patent Case

Over the weekend I got to read through the Markman order that was issued on December 10th in the Level 3 and Limelight Networks patent suit. While a Markman hearing typically does not bring a lot of surprises, there were some interesting details about the suit that came to light from the ruling.

The case was reassigned to a new Judge on September 17th of this year and it is interesting, but not surprising, that the Judge was not familiar with the technology being discussed. In fact, he even thanked both parties saying that the materials they submitted and the technical explanations provided "were all extremely helpful in educating the Court about the nature of the technology at issue in this case." While the lack of technical knowledge by the Judge probably surprises no one, you'd think the court would try to assign the case to someone that has some previous experience with what is being discussed.

Level 3 and Limelight were originally in dispute over twenty two terms but came to agreement on four terms (Subscriber, Resource, URL, Default Path) leaving the court to rule on eighteen terms. The rest of the claim constructions in dispute were in reference to Level 3's 807 and 935 patents, which combined have 66 claims and make for some long reading. So if you want the details on each patent, hit the links for the filings.

The eighteen terms in dispute were Origin Server, Repeater Server, Repeater Server Network, Name, Rejecting the Client Request, Client Request for a Resource, Appropriate Repeater Server, Repeater Selector Mechanism, Subscriber Verifying Mechanism, Embedded, Handled, Obtaining a Client Request, Determining, Alternative/Alternate Path, Destination, Overlay Node, Dynamic Router and Real-time Traffic Information. 

For eleven of the terms, the Judge ruled in favor of Level 3's definition and for the other seven terms, the Judge used a combination of Level 3 and Limelight's definition and/or suggestions from the Court expert, Dr. Zegura, to create his own definition. The fact Limelight did not win any of the claims outright is really not surprising since typically the Plaintiff tries to assert very wide claims while the Defendant tries to narrow down the scope of the meaning. Some of Limelight's proposed definitions were too over reaching and some of Level 3's definitions were too broad and "technically correct but insufficiently descriptive."

There was one instance where Level 3 suggested to the Court that it should adopt its ruling on the definition of "Alternative/Alternate Path" because it was the agreed upon construction in the Cable & Wireless and Akamai suit. The Court didn't agree with the argument saying that "Akamai Technologies is a competitor of both Plaintiff and Defendant and a non-party to the instance case."

Overall, I think both sides got some of their definitions well established and while most would probably say that Level 3 did better, I don't think anyone truly knows if that is true until the case goes to court and we see what phrases and definitions are most important in the case. We can expect that to happen sometime next year.

Note: While I have worked as an expert on multiple patent suits, I have never worked on any patent suit involving any content delivery network.

Akamai and Limelight Court Ruling Expected By End Of The Month

Lately, I've been getting a bunch of questions asking for the latest news on the Akamai and Limelight Networks patent suit. While there is not much news to talk about, Akamai and Limelight were back in court last month and there is a good chance the judge will issue a ruling by the end of this year.

Even if a ruling comes down in the next few weeks, it is unlikely that the judge will reverse the original decision in Akamai's favor and such a ruling would then just result in Limelight filing an appeal. Since the appeal process tends to move a lot faster, we can expect for both sides to be back in court probably by the second quarter of next year. When that happens, details of Limelight's workaround for the Akamai 703 patent will then be detailed and we'll get a lot more information on what exactly Limelight has done to circumvent the patent in their eyes.

It will also be interesting to see if Akamai files an appeal to any of the rulings from the Markman hearing in regards to how the court ruled on some specific language and the definition of certain technology. Some folks I have spoken to have mentioned that it might make sense for Akamai to contest a few of the rulings based on the interpretation of the technology. Whether or not this will happen is hard to say as most of the records and rulings from the court are not available to the public.

No matter what happens, this suit won't be ending anytime soon but a ruling this month could be important for Limelight. While Limelight has been a frequent target of take out rumors, anyone looking to acquire Limelight is going to wait until after the ruling when things are clearer. Even if the ruling only results in Limelight filing an appeal, any company looking to acquire Limelight will then be able to review their workaround and decide if they think the appeal process will be successful or will have a better handle on what damages may cost. Keep in mind, with the money Limelight has in the bank, even having to pay damages to Akamai does very little to impact Limelight's bottom line.

Limelight is reducing pricing in the market while at the same time increasing their margins, something I didn't see many folks talk about on their last earnings call. Last quarter they finished cutting a lot of the smaller customers from their network that weren't growing and they now have over 120 customers for small object delivery, ecommerce and enterprise services. They are starting to get some traction outside of the video delivery market and still continue to close big deals.

This is a very interesting time for Limelight as they are showing signs of added growth at a time when the market stinks and their market cap is down to $185 million. I still think Limelight gets acquired by a major telco next year but with the market being what it is, anyone not offering close to $8 a share and I think Limelight passes and holds out until the market improves. They have the cash to wait and don't need to be in any hurry to sell out. While there was some speculation three quarters ago that Limelight's CEO might be replaced if things did not improve by year's end, Limelight has had a couple of good quarters in a row and last week renegotiated CEO Jeff Lunsford's compensation package.

Whether or not Limelight can do anything to improve their stock price remains to be seen, but the company does seem to be building a lot of momentum for the New Year and is expected to drive a lot of marketing and product focus away from video and into small object delivery in 2009. That's probably not good news for other CDNs who have always been able to win business that required both video and small object delivery since Limelight has typically focused on mostly video related content.

Disclaimer: I have never bought, sold or traded stocks in any public company ever, including Limelight and Akamai.

North Dakota Senator To Re-Introduce Bill On Web Neutrality In January

North Dakota Senator Byron Dorgan plans to once again re-introduce a bill in January that would stop Internet providers from blocking certain kinds of web content. Senator Dorgan and Senator Olympia Snowe already introduced a similar bill together in January of 2007, refereed to as the Internet Freedom Preservation Act, but as an amendment to a larger video franchise reform bill. That bill ended with the vote to add it to the bill as an 11-11 tie, meaning the amendment did not pass.

Of course Verizon (who's FiOS service I use), AT&T and others oppose the bill and when you read some of their quotes on the subject, you have to wonder how dumb they think we all are? Verizon has stated, "...Net Regulation, is trying to solve a problem that doesn’t exist," and "There is a ‘disconnect’ between consumers’ desires for new products and services and the stifling effects of this bill."

Problem that does not exist? Have they seen what Comcast has been in the news for lately? And forget "new products and services" that consumers want, how about being more concerned with the products and services we have today. With all that has gone on in the past year, I'm interested to see if Senator Dorgan's bill in January will be the same as the one he proposed in the past or if any changes have been made to it. I've contacted his office and am waiting to hear back from them if they have any outline of the bill that they can share.

Patent Details Emerge In Level 3's Suit Against Limelight Networks

While I have not yet seen any detailed documentation or records filed with the court regarding Level 3's patent infringement suit against Limelight Networks, with trial slated to start on October 14th, I have been able to confirm that the Level 3 patents at the heart of the suit are 7054935, 6654807 and 6473405.

Patents 807 and 935 talk to the same abstract, which is "Resource requests made by clients of origin servers in a network are intercepted by reflector mechanisms and selectively reflected to other servers called repeaters. The reflectors select a best repeater from a set of possible repeaters and redirect the client to the selected best repeater. The client then makes the request of the selected best repeater. The resource is possibly rewritten to replace at least some of the resource identifiers contained therein with modified resource identifiers designating the repeater instead of the origin server."

Patent 405 talks to the same idea of routing traffic to the best source through a selection process. While the abstract of patent 405 is similar to patents 807 and 935, patent 405 has a more detailed abstract that talks to measuring traffic on the network and states ".... is based on real-time measurement of costs associated with the alternative paths, in response to a user request for transmission of message data to a destination on the network. Cost metrics include delay, throughput, jitter, loss, and security."

Reading through the filings, I notice that patents 807 and 935 specifically talk to HTTP delivery, so one has to wonder if any of Limelight's traffic that is not delivered via HTTP, for instance streaming video via RTSP or RTMP, would fall under violation of the patents. It could be a similar case to the Akamai patent suit where only a portion of Limelight's business falls under the technical description of the patents in question.

All three of the patents were filed in 2001 or 2002 which makes them fall under the Digital Island/Cable & Wireless time frame. However, it is interesting to note that the 807 and 935 patents list employees from the Sandpiper days as the inventors, who are now employed at Level 3.

I don't have enough of the details from Level 3 or Limelight, or access to all of the data to make any guess on whether or not Limelight is or is not in violation and whether or not Level 3's patents will hold up in court. And at the slow rate that patent infringement cases move, I don't expect we'll hear any real information one way or another from this case for at least a year or more.

Many of the content delivery related patents that are going to court these days sound awfully broad and it's getting harder and harder to decipher exactly what these patents mean, what type of content they cover and what type of data transmission they are referencing. While there have been many content delivery networks over the past ten years that have sued one another, none of the suits have yet to have a major impact on any one vendor. That could change years from now when the content delivery market truly grows and as more companies, like Level 3, make intellectual property a big part of their strategy.

Note: As my bio states, while I have worked as an expert on various patent suits pertaining to IP based video, I am not working on any case involving Akamai, Limelight or Level 3. And while I have been asked by firms in the past to work on some CDN related cases, I have never worked on any lawsuit involving any content delivery network.

Limelight Signs New Business With Microsoft and Disney

When Akamai sued Limelight Networks over patent infringement, many speculated that customers would shy away from Limelight and that it would be hard for them to sign new business going forward. While Limelight's revenue has been flat for the past three quarters and it has had to focus some of its attention on the legal proceedings, Limelight is still signing new business and expanding their relationships with current customers.

This morning, Limelight announced some traffic numbers for a special online Disney event where users could watch the full-length Disney Channel Original Movie “Camp Rock.” What wasn't mentioned in the release is that the Disney Internet Group, which Limelight has worked with for the past few years, has just recently expanded their relationship with Limelight and renewed their contract for content delivery services across many of Disney's online properties including Disney Online, ABC.com, ESPN.com, Club Penguin and others. Limelight will be providing a variety of CDN services for on-demand video delivery, webcasting events, website acceleration and professional services.

I have also learned that Microsoft, which already has a 5-year deal with Limelight, has just recently expanded their contract with Limelight for a large volume of additional services. Terms of the new business were not disclosed to me but I expect we'll hear more about it on Limelight's next earnings call. I also see that about two weeks ago, Limelight launched a new blog on their website at blog.llnw.com

For me, I'm not surprised to see Limelight still signing new business. Over the past 10 years there have been numerous CDN patent suits across a lot of companies and to date, no CDN has even been shut down and had to turn customers off. I have yet to hear of any CDN customer who has ever been affected by any of the suits and while I'm sure many customers are interested to see what happens in court, it's still about running their content business as usual.

No Rulings From Today's Motion Hearing In Akamai/Limelight Case

Federal Judge Rya Zobel made no rulings today on any of the multiple motion and counter motions being argued in court by Akamai and Limelight Networks over their patent infringement suit. No ruling is expected until the end of summer.

Judge Hearing Motions Today In Akamai/Limelight Case: Various Potential Outcomes

At 10am EST this morning, Federal Judge Rya Zobel started hearing oral arguments for at least ten motions and counter motions pertaining to the Akamai and Limelight Networks patent infringement case. Clearly, the biggest argument at stake today is whether or not the court will issue a ruling in Akamai's favor, by granting a permanent injunction against Limelight Networks. While many are saying the judge will make no decisions today, there is a chance that some rulings could be made. I will be updating the blog today as soon as I hear either way. With so many motions being heard today and it being an all day affair, I expect we won't hear anything either way until after 4pm EST.

The most likely outcome is that the judge needs more time after hearing the arguments and pushes back the ruling date by a few months. However, with at least ten motions and counter motions being heard today, there is a good chance that some rulings will come down. Judge Rya Zobel has been working on this case for two years now, and has also been involved in some of the previous Akamai patent infringement cases (including those against Speedera and Cable & Wireless), so there is the potential that she has enough info after hearing the oral arguments today to make a ruling.

While a lot is up in the air today, here are some potential ways this can play out for both sides:

• The judge issues no ruling on the injunction and pushes the ruling date back to Q4 of this year.
• The judge could rule that the Akamai patent is too broad and throw out the jury's ruling.
• The judge could narrow the scope of Akamai's patent and could reduce the damages that the jury awarded.
• The judge grants Akamai's request for an injunction against Limelight Networks as is, or potentially narrows down the scope of the Akamai claim.
• If an injunction is handed down, Limelight could get a stay on the injunction, which pushes Limelight's appeal process out to 18-24 months from now, or does not grant Limelight the stay, in which case about 50% of Limelights business is at stake.
• If the judge issues an injunction against Limelight, and the stay is not granted, Limelight could also issue a statement saying they have a work-around to the patent and have reduced their company's liability.

One other potential outcome, which has a good chance of happening, is that the judge rules that some of the motions around the patent are too broad and that the case should go to a higher court. In many patent cases, this happens quite frequently.

Either way, one thing to remember is that Limelight has known about this suit for two years now and I'm sure has not been sitting around doing nothing. Two years is a long time to be able to come up with a work-around and on the last earnings call, Limelight did say that on their Q3 earnings call, they would give shareholders an update on where they stand in regards to their infrastructure. While they did not come right out and say the word "work-around", that is what they plan on giving an update on at the end of the third quarter.

Two-Way Media Files Patent Suit Against Akamai, Limelight, AT&T

On April 11th, Colorado based Two-Way Media filed suit against Akamai, Limelight Networks and AT&T over a series of patents entitled "multicasting method and apparatus". (patent description below) While this is just one of many patent suits taking place in the content delivery sector, there are a few unique details about this one to watch. For starters, Two-Way Media first filed suit against AOL and after a successful Markman ruling in their favor, AOL settled out of court for an undisclosed amount. That by itself does not mean anything as it may have been easier for AOL to settle rather than pay legal costs, but the fact they settled after a ruling is a bad sign.

Even more interesting in my eyes is that the main patent, number 5778187 was filed in 1996 and was licensed by Two-Way Media to Cable & Wireless in the early days of the content delivery market. For those that remember, Sandpiper and Digital Island were some of the original CDNs that were acquired by Cable & Wireless. There is no way to know if Cable & Wireless licensed the patents because they felt they were valid or not, but the fact another CDN even licensed it makes this suit even more interesting.

Some may wonder why other CDNs are not mentioned in the suit and my guess is that it's the same reason most suits like this only name those showing a lot of revenue. Until a company is doing a certain level of revenue, there is no reason to really go after them. But you can expect that as more CDNs see revenue growth and the content delivery industry turns into a multi-billion dollar market over the years, CDNs are going to be inundated with patent suits. It's also interesting to note that once again, Level 3 seems to have a very clear strategy with regards to CDN patents and has no exposure to this patent either. Level 3 is covered under the original Cable & Wireless licensing deal with Two-Way Media through Level 3's acquisition of the SAVVIS content delivery business, which included their intellectual property.

Other CDNs aside from Level 3 could be in the cross hairs of companies like Two-Way Media, but at this time it's too early to know exactly who Two-Way Media and other patent holders may go after. And for those who say that some CDNs have no concern as they have made public statements saying they are not worried, what do you think they are going to say? No CDN is going to come out and tell Wall Street or investors, yes, this patent worries us. So unless a company comes out and address a specific patent and provides details as to why they feel they are not infringing, you really can't believe the corporate line of "we're not worried", unless of course you are Level 3.

Patent Abstract
A scalable architecture is disclosed for delivery of real-time information over a communications network. Embedded into the architecture is a control mechanism that provides for the management and administration of users who are to receive the real-time information. In the preferred embodiment, the information being delivered is high-quality audio. However, it could also be video, graphics, text or any other type of information that can be transmitted over a digital network. Preferably, there are multiple channels of information available simultaneously to be delivered to users, each channel consisting of an independent stream of information. A user chooses to tune in or tune out a particular channel, but does not choose the time at which the channel distributes its information. Advantageously, interactive (two-way) information can be incorporated into the system, multiple streams of information can be integrated for delivery to a user, and certain portions of the information being delivered can be tailored to the individual user.