Legal Setback Steals Akamai's Limelight

• Email
• Share
• Print

Kiss $45 million goodbye, Akamai (Nasdaq: AKAM).

On Friday, a district court judge in Massachusetts overturned the Web content delivery specialist's 2008 patent infringement victory over Limelight Networks (Nasdaq: LLNW), voiding a $45 million jury award for damages. Akamai, not surprisingly, has already promised to appeal.

And yet investors don't seem to care. On a down market day in which swine flu fears flooded the headlines and a surprise flyover of New York City by an Air Force One lookalike rattled nerves in lower Manhattan, shares of Akamai, a Motley Fool Rule Breakers recommendation, rose nearly 2%. Weird.

Or is it? After last year's victory, shares of Akamai fell 6% in the three days following the court's decision. Yesterday's buying follows the same Costanzian strategy, a la Seinfeld's George Costanza, to always do the opposite. Here, investors are buying on not just bad news, but awful news.

How awful? Friday's ruling opens the door to more competition by diluting the effectiveness of Akamai's most critical patent, held in conjunction with the Massachusetts Institute of Technology.

Akamai already faces direct rivals in Limelight and Level 3 Communications (Nasdaq: LVLT) as well as privately held upstarts such as EdgeCast and BitGravity. Other would-be squatters include Amazon.com (Nasdaq: AMZN), AT&T (NYSE: T), and Cisco (Nasdaq: CSCO).

For years, they've been trying and mostly failing to unseat Akamai. Friday's ruling -- if upheld -- would give them a needed boost.

Get your clicks with related Foolishness:

• I'm counting on Akamai and four other tech stocks to make me rich.
• Others wonder whether this company is doomed.
• Here's why Akamai doubled.