Limelight Reworks Software for Microsoft CDN

Limelight Networks’ loss to rival Akamai in a patent lawsuit has forced Limelight to rewrite the content delivery network software it licensed to Microsoft Corp. In an SEC filing Friday, Limelight (LLNW) reported that it had amended its agreement with Microsoft (MSFT) to address a February jury verdict in which Limelight was ordered to pay Akami (AKAM) $45 million for infringing its patents. 

Microsoft is building its own content delivery network (CDN), with Limelight providing software and engineering support. The August 2007 agreement between the companies was updated on Oct. 1 to address the Akamai ruling. Here’s an excerpt from the SEC filing: 

Under the Agreement, (Limelight) agreed to license certain software to Microsoft. The Company has been involved in litigation in which a jury verdict has been rendered stating that the Company’s provision of content delivery network services to its customers infringes certain patent claims of Akamai Technologies, Inc. The Company has created or is creating a new version of its software, which the Company believes is or will be non-infringing. The Amendment provides for the implementation of a new version of the Company’s software within Microsoft’s infrastructure.

The brief filing does not indicate whether Limelight has completed the workaround. But it suggests that Microsoft is now satisfied that the software Limelight is providing will no longer infringe Akamai’s patents. If the revised software can support Limelight’s own network - which is not explicitly addressed in the filing - it could reduce the impact of the Akamai patent ruling on Limelight’s ongoing operations.

Limelight Powers Content Delivery for the Wii

As its Wii game console continues to grow in popularity, Nintendo is adding content delivery horsepower to ensure that your Wii news and weather updates aren’t delayed. Nintendo said today that it has begun using Limelight Networks (LLNW) to deliver interactive content for the Wii.

Limelight’s content delivery network (CDN) has caching capacity in more than 900 broadband and last-mile providers worldwide, which will help ensure rapid delivery  to Wii users around the world.

“We are pleased to be enabling a great user experience for the highly successful Wii console, and to be working with such a respected global gaming brand as Nintendo,” said Shinji Tsukamoto, vice president of Limelight. “Limelight Networks is now delivering content and providing services for all three major gaming platforms around the world.”

A Look at Limelight’s Operations Center

It’s Limelight Networks day over at ZDNet, where Jason Perlow looks at the strong performance of Limelight’s streaming efforts for NBCOlympics.com, and Larry Dignan examines how LLNW stacks up against Akamai Technologies (AKAM) in the battle for supremacy in the content delivery market.

ZDNet also offers a look inside Limelight’s network operations center in Tempe, Arizona, where it manages 5 petabytes of customer data. Your eyes are not deceiving you: they have green racks to align with their logo and branding.

UPDATE: Jason Perlow’s post brought a lengthy, detailed rebuttal from Akamai.

Limelight Explores Alternatives on Patents

In an open letter to reassure customers about its future, Limelight Networks (LLNW) says it has no plans to scale back its operations and will “vigorously defend” the company’s position in an appeal of its recent court loss to Akamai Technologies (AKAM).

On Feb. 29 a Massachusetts jury awarded Akamai $45 million in damages from Limelight in a patent dispute. The jury found that Limelight’s content delivery technology infringed on Akamai patent 6,108,703, known in the industry as the “703″ patent. The verdict prompted speculation that Limelight faced a network shutdown (a prospect the company itself raised in SEC filings about the Akamai case) or be acquired by a competitor. Noting these rumors, the company addressed its customers directly:

We have no plans to discontinue operations. We are financially strong with approximately $197 million of cash and marketable securities on our balance sheet as of the end of 2007, and no material debt. Further, we are actively exploring alternatives that would enable us to continue to provide the same level of service that we always have and eliminate any issue of infringement, if such is determined with finality by the courts. Additionally, there are many aspects of our business that were either not accused of infringing or we believe are clearly outside the scope of what was litigated.

Read the entire letter on Limelight’s web site (link via GigaOm).

More Limelight Buyout Rumors

Henry Blodget at Silicon Alley Insider seems convinced that someone should buy content delivery network Limelight Networks (LLNW), but the likely acquirer seems to be a moving target. After a series of posts predicting Limelight would be bought by Microsoft (MSFT), Blodget now speculates that Level 3 (LVLT) may be a bidder and that a deal “might happen sooner rather than later.” Interestingly, Blodget acknowledges that his source “has no information here: s/he is just putting two-and-two together.”

I’ve been skeptical about the reports that Microsoft would acquire Limelight, since the two companies are already partnering on Microsoft’s expansion of its own CDN infrastructure. It has certainly occurred to industry watchers that Level 3, which wants to grow its CDN business, might covet Limelight. But recent events suggest Level 3 may be taking a break from additional acquisitions, as Dan Rayburn notes in the comments at Silicon Alley Insider:

Level 3 buying Limelight is not a bad idea, but at this time, I don’t think Level 3 shareholders would let Level 3 buy any more companies considering how many they have bought recently and how much pain they have experienced integrating them into Level 3. And with Goldman holding 35+ million shares and probably looking to get back to at least even to the IPO price, Limelight would have to get sold for some where around $500 million for that to happen.

Writer’s Strike Costs Limelight $1 Million

Content delivery network provider Limelight Networks (LLNW) said that the Hollywood writer’s strike will cost it $1 million in revenue for the first quarter of 2008, as media companies scaled back their spending plans for the long haul. Although the strike has now been settled, uncertainty about the pace of content delivery for new TV shows was one of the factors that prompted Limelight to reduce its revenue guidance to a range of $30 million to $32 million. Wall Street analysts had been expecting revenue of $33.2 million. It’s interesting that the writer’s strike doesn’t seem to have had the same kind of impact at Akamai (AKAM).

Limelight also missed its fourth quarter numbers, reporting revenue of $29.1 million, while the Street was expecting $29.92 million.

Akamai-Limelight Suit Streamlined

Dan Rayburn at the Business of Online Video reports a development in the patent infringement lawsuit between Akamai (AKAM) and Limelight Networks (LLNW), the two leading players in the content delivery network business. Dan says the court has streamlined the case, issuing a preliminary ruling focusing on a single Akamai patent, effectively setting aside issues related to two other patents. We’ll update once more information is available.

Limelight Shares Drop, No MSFT Bid Seen

As it turns out, Microsoft (MSFT) was preparing an acquisition offer for an Internet company. It just wasn’t Limelight Networks (LLNW), despite persistent rumor reports from Silicon Valley Insider and others. Microsoft’s $44 billion takeover bid for Yahoo (YHOO) seems to rule out an acquisition of Limelight as well.

With a potential deal premium seemingly gone, shares of Limelight are down 8 percent in early trading at $6.12 a share, down 54 cents. Eric Savitz at Barron’s reports that Jefferies & Co. analyst Katherine Egbert has cut her rating and price target for the content delivery network (CDN) operator, citing pricing pressures and the reality that a deal now “seems remote.”

Microsoft-Limelight Deal Rumors Persist

Henry Blodget at Silicon Alley Insider has another post today about rumors that Microsoft (MSFT) will acquire Limelight Networks (LLNW), citing a second source. Henry first wrote about this last Friday, about the time we noted that Microsoft is building its own content delivery network (CDN) infrastructure using technology it licensed from Limelight.

Blodget’s latest update suggests a possible synthesis of the buy vs. build scenarios: “Our source believes Microsoft also wants to own and operate its own CDN architecture and sees Limelight as a quick solution to the CDN piece of the puzzle,” he writes.

We know Microsoft is working on its own CDN infrastructure. They’ve said that. What’s unclear is whether the persistent rumors about an MSFT-LLNW deal is just market chatter generated by a misunderstanding of the two companies’ existing relationship, or represents a genuine interest by Microsoft in purchasing its partner.