Dueling lawsuits concern CDN users

Once the high-flying darlings of the Internet boom, content delivery networks have sunk into a morass of complicated legal tanglings that has cast a shadow over the market and created anxiety among customers.

CDN market leader Akamai fired the initial volley in September 2000 of what has become an increasingly heated battle with competitors Digital Island and Speedera. Now, in addition to accusing Speedera of patent infringement, Akamai says the company illegally hacked into its database of customer performance figures and is engaged in a he-said-she-said battle with Digital Island as each company tries to turn off the other’s service.

Customers find the wrangling unsettling.

“Most of our time should be focused on running our businesses and these [legal issues] are distractions to that,” says one Akamai customer who asked not to be named. “As if worrying about whether a business is going to stay in business wasn’t enough, now we’ve got this.”

It’s a convoluted situation that appears no closer to a resolution than when the first lawsuit was filed. While most customers do not appear concerned their service might be shut down soon, they say they are watching the legal maneuvering closely and consider the situation an annoyance.

“I’m sure it’s distracting them and that’s frustrating,” says a Speedera customer who asked not to be identified. “It would be nice if they could just concentrate on business. But in the end, we’ll stay with a CDN if it makes sense from a cost [and performance] perspective.”

Patent infringement lawsuits are hardly unusual in the tech sector, where intellectual property is a key asset. Last month, for example, Hewlett-Packard sued EMC for patent infringement just months after EMC traded infringement claims with Hitachi Data Systems.

The issue within the CDN market, though, is the protracted and increasingly nasty nature of the proceedings, analysts say.

“In many cases, these suits end up being much ado about nothing. When all is said and done there is either some sort of settlement or some modification of behavior and you move on,” says Rob Batchelder, a research director at Gartner. “But when PR agencies are saying, ‘I’m going to shut these guys down’ and then the countersuit flies and says, ‘I’m going to shut those guys down’ and they’re asking for injunctions, that’s when the lawyers have taken over and started running the company.”

What’s more, the complex nature of the CDN patent disputes make it difficult for customers to understand what the legal fighting is about and which companies might be vulnerable.

The saga started when Akamai sued Digital Island, claiming infringement of its patent that covers technology involving renaming URLs to join a CDN host name to a domain name and path to direct content requests to edge caching servers.

Digital Island fired back with a lawsuit, accusing Akamai of infringing on its patent that covers ways to track data to ensure the freshest information is delivered to Web sites and that duplicate information is not stored in its caches.

A little more than a year later, in December 2001, a federal jury found that Akamai was not infringing on Digital Island’s patent, but that Digital Island was in violation with its Footprint service. Digital Island, which had been acquired by Cable & Wireless the year before, contended it no longer used the technology in question.

But then the requests for injunctions started to fly. Akamai filed for an injunction to shut down the Footprint service, and a federal judge granted that injunction in August. C&W claimed the injunction has no bearing because the technology is not in use in a service currently available.

At the same time, C&W targeted Akamai with two lawsuits. The first stems from a newly issued patent that C&W received that covers ways to ensure only the freshest information is served to Web sites and that information is not duplicated on the CDN. Akamai says the technology is the same that it was cleared of violating in the jury ruling last year.

The second C&W lawsuit involves an optimal routing technology that covers Host-to-Host Adaptive Routing Protocol. In both cases, C&W is seeking injunctions to shut down Akamai’s EdgeSuite service until Akamai removes technology that C&W claims violates its patents.

Meanwhile, Akamai has taken aim at Speedera, accusing it of patent infringement, and of unfair competition. In addition, Akamai claims that Speedera illegally hacked into a database to get at performance information regarding customers and prospects. Speedera denies any wrongdoing and fired back with a lawsuit accusing Akamai of unfair competition.

“When you put the customer in the situation of having to sort through all the PR bluster and then sort out what the real issues are and whether they affect them, that just puts an awful big burden on the customer. We don’t think that is something that is in the best interest of the industry,” Batchelder says.

Gartner is advising customers in some cases to use their own patent attorneys to sort out the mess before signing contracts. In addition, customers should be sure contracts give them an out if a specific service is enjoined.

Even the CDN vendors recognize the risks to the industry associated with their legal fights.

“Overall it’s having a negative effect on the market in that people are confused by the messages,” says Ted Middleton, director of content delivery at C&W. “There is some apprehension, but I don’t think people are deferring their decisions to invest in CDN technology because there is a legal question hanging out there. The other thing is there is no safe harbor that’s not involved in litigation.”

Customers noted that it’s not tough to shift between CDN providers, because the services are so similar. Also, one Speedera customer, who asked not to be named, says it would be easy to bring his content back in-house.

“We’ve stayed away from vendor lock-in,” he says. “We name our DNS to our CDN provider, so if there’s an issue with the company, we can change the DNS and serve content from our servers.”

Nevertheless, Batchelder and other analysts say the infighting is casting a pall over a market that has failed to reach the dizzying heights expected during the dot-com era. Akamai’s stock, for example, which traded at $300 in December 1999, now is priced at less than $1. Not that the market doesn’t have potential, or room for multiple players, analysts say. IDC pegged the market at just more than $288 million in 2001 and expects it to climb to a little more than $2 billion in 2006.

The legal fighting, however, if it drags out too long, could overshadow positive steps within the market. Just this past summer, for example, Speedera and C&W claimed that their CDN businesses reached profitability. Akamai recently announced an expanded relationship with AOL and will place its edge servers in the AOL backbone.

“When I look at the CDN industry there is absolutely no doubt in my mind that this is an immensely valuable technology and that this industry isn’t going to go away. But it has to restrain itself from its self-destructive tendencies,” Batchelder says. “Strategically, it’s a stupid thing. You don’t want to wave people off an industry you’re trying to grow, and this will give people pause.”