Web content delivery firm Akamai Technologies’ (AKAM) patent victory over Limelight Networks (LLNW) should put a big dent in its smaller rival — not just in court, but in sales. Even if Limelight eventually wins an appeal, it will likely have a tough time competing over big deals for the next year.
Last Friday, a jury ordered Limelight to pay Akamai $45.5 million in damages. (For a sense of scale, that’s almost 70% of Limelight’s 2007 sales.) Limelight’s ability to conduct business is safe for now: It has appealed the decision, and any injunction will most likely get a stay during the appeal process. But an estimated year in legal limbo could be devastating for Limelight’s sales efforts.
Consider the scenario: You’re about to lock in a 12- to 18-month contract for content delivery network (CDN) services. Would you take a deal with a company (Limelight) that will spend the next year trying to reverse a patent suit — or the bigger, more expensive provider (Akamai) that a jury already decided Limelight has infringed? In this situation, we expect a lot of big players to choose Akamai, while some lower-end deals could trickle down to Level 3 (LVLT), whose patent position is strong.
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Limelight customers (and investors, who have watched the stock lose more than 80% of its value since its IPO last summer) might still get a reprieve. In a note today, FBR Capital Markets analyst David Hilal said speculation around a Limelight buyout will continue. But now that Limelight has lost the patent case, Hilal thinks Akamai is the most likely buyer.
It’s happened before: After Akamai sued rival Speedera with the same patent, it acquired the company.for $130 million in stock in 2005.
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