Level 3 predicts CDN patent fights

In the midst of a much-publicized patent dispute between voice-over-IP (VoIP) provider Vonage and Verizon Communications, Level 3 Communications today foreshadowed increasing conflicts over intellectual property in the future and plans to participate in those fights in the content distribution arena.

“We now hold foundational patents in content distribution,” said James Crowe, Level 3’s chief executive officer. “As we all know, intellectual property is a battlefield, and we expect that battlefield will widen. It’s a key matter for any business that has intellectual property that they either want to defend or be more offensive about. We expect to participate in both activities.”

Late last year, Level 3 capped a string of acquisitions by buying Savvis’s content distribution network (CDN) assets for $135 million. The move was meant to give Level 3 the capabilities to address a rising tide of bandwidth-rich applications such as Internet-based video and gaming.

During Level 3’s first-quarter earnings call today, Crowe addressed the Verizon/Vonage patent fight as a topic he is often asked about. He expressed confidence that Level 3, a wholesale VoIP provider, does not violate any of the patents that Vonage has been accused of violating. Calling the protection of intellectual property a “key matter,” he added, “We acquired CDN specifically in recognition of this fact.”

Another CDN player, equipment vendor Akamai Technologies, filed a patent infringement suit against competitor Limelight Networks last year.

Crowe doesn’t expect the CDN business to contribute significantly to Level 3’s overall revenue this year (it generated about $3 million in the first quarter, while Level 3 reported more than $1 billion in total quarterly revenue) but expects it to be a much larger revenue engine in coming years.

“We want a much, much larger piece of the overall CDN market, which we expect to grow explosively,” he said.