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Akamai’s Lawsuit Likely To Be A Giant Headache For Startup Cotendo

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Akamai (NSDQ: AKAM), the biggest company in the content delivery network business by market share, has hit competitor Cotendo with a lawsuit [PDF] claiming that the smaller company infringes on three Akamai patents. While Cotendo has already moved to reassure any customers that it will fight the allegations in court, the suit could be a serious burden for the startup.

Cotendo, which is based in Silicon Valley with R&D in Israel, was launched in 2009 and reportedly has raised a total of $22 million. In high-stakes cases, it often costs more than $4 million to litigate a patent case through trial, a significant sum for young companies. That’s probably why Cotendo’s first move here was to reassure its customers, emphasizing that the company “does not expect this lawsuit to have any impact on its service offerings.”

When competing companies use patents to battle each other, the most common pattern is small or defunct companies suing market leaders, looking to cash in their patents. But “predatory” patent lawsuits such as Akamai’s, brought by dominant players against smaller competitors, do happen as well.

Akamai’s co-plaintiff in the suit is the Massachusetts Institute of Technology, where one of three patents in the lawsuit originated. Having a well-respected university on board as a co-plaintiff could further accentuate Akamai’s home-court advantage in this case, which was filed in federal district court in Massachusetts. (Akamai is based in Cambridge, Mass.)

Other competitors in the business of content delivery networks, or CDNs, include Limelight Networks (NSDQ: LLNW) and Level 3 Communications. CDNs help websites move large amounts of data quickly, making them vital to businesses like Netflix (NSDQ: NFLX) that stream video.

Earlier this year, an analyst with Wedbush Securities estimated that Akamai controls around 60 percent of the CDN market.

Akamai is no stranger to patent lawsuits. The company successfully sued competitor Digital Island for patent infringement back in 2000, and sued Speedera in 2002. Both of those defendants were later acquired, with Speedera actually getting acquired by Akamai in 2005-perhaps at a depressed price due to the still-active lawsuit.

In 2008, Akamai won a lawsuit against competitor Limelight Networks and was awarded $45 million by a Massachusetts jury, but that win was later set aside by the judge.

Akamai v. Cotendo Patent Lawsuit – Complaint