Level 3-Limelight Case Could be Trendsetter

Level 3 Communications Inc. said this week its suing Limelight Networks Inc. for infringing on its content delivery network patents. Meanwhile, one telecom attorney predicted the number of cases like this only will increase as carriers roll out converged services.

Wholesaler Level 3 filed the lawsuit Dec. 17 in Virginias Eastern District Court. Level 3 and Limelight both operate in Virginia and the court in question is known for processing dockets quickly its the one that handled the Michael Vick dog fighting case.

Level 3 accuses Limelight of using and profiting from three patents, which Level 3 owns thanks to the $132.5 million acquisition of SAVVIS Inc’s content delivery networks assets. Level 3 wrapped that deal in Jan. 2007 and the next month, sent a letter to Limelight. The notice informed Limelight it was using Level 3s intellectual property, Level 3 wrote in the Dec. 17 court filing. But Limelight did not re-design its [content delivery network] to avoid the claims of the Level 3 patents, Level 3 said.

Level 3 further complained that the nearly 7-year-old Limelight raised more than $200 million in its IPO in July 2007 because of the services it offers to its customers using Level 3s exclusive intellectual property. Level 3 hasnt specified how much money it wants for the irreparable injury and damages it said it has suffered. It did tell the court, however, that it wants a jury trial.

Limelight didnt immediately return a phone call for comment on Wednesday. The company said in a Dec. 31 statement, however, that it believes the allegations are unmerited and that it will defend itself vigorously.

Traditionally known as a voice and data carrier, Level 3 got into the content delivery space when it bought SAVVIS, which started as Sandpiper Networks Inc. in 1996. And competition in content delivery is heating up as carriers roll out proprietary applications and as companies such as Google eye owning networks.

I can virtually guarantee that we will continue to see an uptick in cross-licensing and patent litigation among and between service providers, as well as others in the telecommunications space, said William Wilhelm Jr., a partner at Bingham McCutchen LLP who specializes in IP litigation. This past year we’ve probably worked with more clients (investors, manufactures, software developers and service providers) on IP strategy than we have the previous five.

Still, Level 3s Grant van Rooyen, senior vice president of Level 3’s content markets group, said the suit against Limelight has nothing to do with competition. Its about principal, he said. We took the time to identify the technologies and those who had rights to those ideas and those technologies, he said. We think protection of those rights is critical.

He called the timing of the lawsuit irrelevant.

Once we believe someone is infringing on our patents we do our homework and proceed, van Rooyen said. Timing is of no consequence. It takes a while to be clear on what you have and what others are doing.

And even though content delivery only contributed a small amount to Level 3s overall income in 2007, were very focused on protecting our assets, van Rooyen said.

In the meantime, Wilhelm said lawsuits such as Level 3s will grow in number as more executives and boards become attuned to the importance of IP strategy.

This is a relevant topic and I think we will see a trend going forward, he said.

Level 3 stocks closed at $3.07 on Wednesday, up three cents. Limelight shares closed at $6.68, down 21 cents.

Bingham McCutchen LLP www.bingham.com
Level 3 Communications Inc. www.level3.com
Limelight Networks Inc. www.limelightnetworks.com