Sharks Circling Limelight Networks

We are always fishing for a good story around here. Particularly this time of year. Sport fishing is gearing up in the waters off Montauk, and between now and October prime brokers everywhere will schlep favored clients out to the canyon, just out of the reach of Bill Galvin.

If you throw a little chum in the water it usually does not take long for something to swim up to the boat.  And sharks, in the form of lawyers, are circling Limelight Networks due to its long running lawsuit filed by arch-rival Akamai Networks.

A lawsuit has been filed against us and an adverse resolution of this lawsuit could cause us to incur substantial costs and liability or force us to cease providing our CDN services altogether.

In June 2006, Akamai Technologies, Inc., or Akamai, and the Massachusetts Institute of Technology, or MIT, filed a lawsuit against us in the U.S. District Court for the District of Massachusetts alleging that we are infringing two patents assigned to MIT and exclusively licensed by MIT to Akamai. In September 2006, Akamai and MIT expanded their claims to assert infringement of a third, recently issued patent. These two matters have been consolidated by the Court. In addition to monetary relief, including treble damages, interest, fees and costs, the consolidated complaint seeks an order permanently enjoining us from conducting our business in a manner that infringes the relevant patents. A permanent injunction could prevent us from operating our CDN altogether.

The Court held a claims construction hearing, known as a Markman hearing, on May 17, 2007. We do not anticipate that we will receive a ruling on this hearing before mid-June 2007, and the ruling may come much later. Although the Court has not set a trial date, based on the schedule currently in place, we believe it is likely that the case will go to trial in 2008. Limelight S-1

Limelight’s founder ran into a spot of trouble while working at now defunct Nasdaq-listed Critical Path Inc, an early pioneer in enterprise email services.  It was a nightmare for most shareholders, but not so bad for Mr. Rinehart as he cashed in a slug of stock and subsequently disgorged a portion of the ill-gotten windfall back to regulators in the form of fines. He dusted himself off and used the remainder of his proceeds to start Limelight, a inspirational story to everyone except for those unfortunate souls on Main Street who rode Critical Path’s stock into the ground.

Akamai Technologies’ stock bottomed out a few weeks ago as Limelight commenced its roadshow and nervous nellies puked the stock. And while it remains to be seen how the legal tussle plays out, at least one analyst and a patent law expert are in a rush to judgment.

And they are coming down on the side of Akamai:

Akamai Technologies (AKAM-NASDAQ), which operates a collection of data centers around the world to speed up Web sites such as that of Apple (AAPL), is likely to prevail in a patent-infringement suit it filed a year ago against competitor Limelight Networks (LLNW), which went public earlier this month.

That’s the view of Cowen & Co. analyst Tom Watts, who today hosted a conference call with UCLA professor and patent law expert Doug Lichtman. Cowen says Lichtman’s point-of-view is that Akam has an 80% to 85% chance of winning the case, which is in its early stages in which the court is to issue a definition of what the patent means. The results of that initial hearing, which could come “any day now,” will be an indicator of how strong Akamai’s position is. The case could go be settled in negotiations, but Watts expects Limelight to pursue full litigation of the case and that a decision may not come before 2008. Tech Trader Daily

A reversal of fortunes has witnessed Limelight’s stock giving up its post-IPO gains and Akamai recovering market cap that was temporarily lost to the sentiment shift.

Soon we shall see if the Street is handicapping this one better than it did with RIM and its long running patent battle.

In the meantime I would like to offer a hearty Aloha to the shareholders of Limelight. Of course, in the Hawaiian language, that can mean hello or goodbye.

Limelight shareholders likely prefer the former. But they might have to set the gaff pretty deep to end up on top here.

Akamai Likely to Prevail in Suit against Limelight, says Cowen
Tech Trader Daily

Limelight Networks IPO prices above range
6/8/07

Akamai is a Hawaiian word meaning smart or intelligent.
Wikipedia
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

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