Skype, Founders Charged With Racketeering

Legal Issues

from the fun-with-lawsuits dept

It’s fairly well known that Skype’s founders won’t come to the US for fear of lawsuits arising out of their part in building Kazaa… but it looks like they may now have another lawsuit on their hands as well. Andy Abramson gets credit for the big scoop of the weekend, discovering that Morpheus maker Streamcast has now sued Skype and its founders Niklas Zennstrom and Janus Friis under RICO laws, which are more commonly used against organized crime groups. It’s not all that common for RICO violations to be charged between companies, but it does happen (recently a few times against the recording industry, for example). Abramson has all the details, which Om Malik summarizes as being all about the money — basically saying that Streamcast is pissed off that Zennstrom didn’t sell them the Kazaa technology, before spinning it off to Sharman Networks. Streamcast says that the their own deal included a “right of first refusal” should Zennstrom sell the technology to anyone else. Streamcast also claims that the basic Kazaa technology is part of Skype.

For some background on this, it helps to go back a few years. In early 2002, there were two major file sharing tools that had taken the crown away from the shut down Napster: Kazaa and Morpheus. However, both used the same basic technology, called FastTrack, and files on one system were found on the other. The team behind Kazaa had created FastTrack as well, but just before the recording industry lawsuits started piling up, Zennstrom and his team sold the basic technology, creating quite the mess — where no one quite knew who owned what or who owned what. This “mess” is part of what Streamcast is focusing on, saying that it was all an elaborate shell game, used for fraud. Just as all of this was happening, the folks who owned FastTrack suddenly shut Morpheus users out of their system — which seemed quite odd. After all, the whole pitch of the “decentralized, peer-to-peer” file sharing system was that it couldn’t be shut down once launched. Streamcast, the company behind Morpheus, lashed out at the folks behind Kazaa, accusing them of setting up an “attack script” that basically updated their client to make it unusable on the FastTrack network. Kazaa responded by saying that Morpheus hadn’t paid its bills — but the new lawsuit says that it was all a plan to steal away Streamcast’s users to the shell corporation set up to run Kazaa. The battle between the two organizations has continued over the years, and in early 2004, Streamcast accused Kazaa of really being a centralized, not decentralized system — which (if true) would punch a huge hole in Kazaa’s defense in various lawsuits that they had no say in what people did with their software.

Anyway, it appears that none of these past tactics did much damage, so now Streamcast is trying once again, but this time focusing on Zennstrom, Friis and Skype/eBay. Why? Well, there are a few billion reasons why, and they have some dead American Presidents on them. Specifically, they claim that as part of the shell game, the actual FastTrack P2P software remained in Zennstrom’s control, and he used it as the core piece of Skype’s P2P engine. Streamcast claims that, given their original deal, it should own that technology, as Zennstrom had no right to sell it to a third party without first giving Streamcast a shot to buy it. It seems hard to believe that this lawsuit will actually get very far, but it will be quite a distraction. It’s certainly yet another reason (if there weren’t enough already) to question why eBay spent so much on Skype.