Streams of Thought: The Patent Wars

As content delivery networks (CDNs) commoditize and as streaming grows up, there are three ways for companies to create market share: disrupt, enhance, and defend.

The disruptors are the ones that create a disruptive technology that causes other parts of the market to revisit both their business models and their technology portfolios. These companies are masters at creating buzz—think about peer-to-peer (P2P) or even Burst.com’s fast start technology. Besides buzz, they also tend to create a few accusations, one or two lawsuits, and quite a bit of scurrying behind the scenes—or at least modified sales speak to say, "We do that too."

The enhancers take their products and services, add extra features to ward off deterioration of market share or revenues, and then roll those services out to customers. While there’s baggage from existing technologies or business decisions, a turnaround is more challenging than a disruptor, so it’s all good.

The third area, which I’ll explore in more detail in a future article, is the defender. This is the company that refuses to believe its product or service has become a commodity and reacts accordingly. For some, the reaction is denial; until it reaches past the denial and acknowledges that a seismic shift has occurred, it can’t get on with the process of enhancing.

Others find ways to defend their ground rather than enhance their product or service. The most common defense mechanism used by defenders is patent litigation (or at least patent saber-rattling). We’re all familiar with the term "patent troll," which has been applied to the likes of Acacia Technologies, which StreamingMedia.com followed quite vigorously about 2 years back. Yet, there are other companies buying up patents or defending a small set of patents that aren’t accused of antisocial behavior.

Consider the dispute between Limelight Networks and Akamai Technologies. A few months back, Limelight lost an infringement case brought by Akamai to the tune of a $45.5 million judgment, but is appealing the case and was hoping its then-current $197 million would see it through to the appeals process. The company took the write-down for the judgment within the quarter and still has a market capitalization of $250 million as of the time of this writing, but it feels it will prevail against its well-funded rival.

Then consider Level 3 Communications, Inc. As Dan Rayburn and others have pointed out, Level 3 has been amassing a patent pool that’s fairly formidable. He noted in a blog post on GigaOm that the United States Patent and Trademark Office listed IBM as the owner of 20 patents pertaining to CDN and streaming. "It also claims they’re in the process of being transferred over to Level 3. I contacted Level 3 and they confirmed this was indeed true," he wrote. "It’s already clear that Akamai isn’t the CDN its competitors should be worried about. … With the acquisition of the SAVVIS assets—including the Sandpiper patent, which predates Akamai’s 703 patent—Level 3 is clearly in the driver’s seat."

So now, not only do we have Acacia, which only buys and prosecutes patents, we now have Level 3, a player in the industry, buying up patents. As other companies such as AT&T come into the streaming CDN space—thanks to the work to build up the market done by early CDNs—we have yet another set of patents that Ma Bell has held for many years that have to do with video transmission.

Even the smaller companies are getting into the patent fray. Burst.com, which I mentioned as a disruptor, found its only defense against Microsoft and Apple was to hunker down and litigate against its primary patent. In an upcoming article, we’ll talk about how some of the innovations of the 1999–2001 time frame are finally being awarded patents as well as how these patents could potentially be licensed to better serve both the patent holder and the industry as a whole because what we haven’t seen in these early patent skirmishes is a mature patent licensing approach that defines an industry that’s moving beyond the Wild West "winner take all" mindset and into a more mature phase.

Will the streaming media industry ever get to the point where innovation dies? Not any time soon, as there are enough entrepreneurs in garages, spare bedrooms, and lofts to keep disrupting for years to come. But we’re going up, and we’ll get to the civil discourse stage soon enough, I’m sure—at least when it comes to patents—just like our predecessors in web design and content delivery did. The intervening time, to be sure, will get a bit messy, but it’s nothing we can’t get through with a good dose of humor and a bit of disruption to keep us all on our toes.