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Skype, Founders Charged With Racketeering

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.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    verinox, Mar 27th, 2006 @ 4:21am


    "Hey, you didn't let us become as illegal as you became, so we're filing a lawsuit several years after the fact!"

    reply to this | link to this | view in thread ]

  2. identicon
    Bob3000, Mar 27th, 2006 @ 6:05am

    Actually this article was a good synopsis of the Kazaa/Skype relationship which was news to me.

    reply to this | link to this | view in thread ]

  3. identicon
    moe, Mar 27th, 2006 @ 6:10am

    Is there a case?

    Am I the only one that sees the contradiction in their lawsuit?

    They are suing Zennstrom & Friis for selling FastTrack to Sharman without giving Morpheus right of first refusal. But, as part of their case they are claiming control of FastTrack was never actually sold and still resides with Zennstrom & Friis.

    Maybe there are some detail I didn't catch?

    reply to this | link to this | view in thread ]

  4. identicon
    Rizwan, Mar 27th, 2006 @ 7:20am

    No, you're right Moe, it's just that lame.

    reply to this | link to this | view in thread ]

  5. identicon
    Moogle, Mar 27th, 2006 @ 7:30am

    Soap Opera

    It sounds like a really bad soap opera. On the next episode, we'll find out that Skype's father isn't really Kazaa, it's Morpeus, and Zennstrom was having an illicit affair, and didn't take her decentralized birth control pills.


    reply to this | link to this | view in thread ]

  6. identicon
    sic, Mar 27th, 2006 @ 10:20am

    Re: Soap Opera

    A really bad mexican soap opera

    reply to this | link to this | view in thread ]

  7. identicon
    Thaed, Mar 27th, 2006 @ 5:45pm

    Ahhhh! Don't hurt my precious!

    I love Skype. Without Skype, there would be no podcasting. I'd have to figure out how to podcast with Vonage. :(

    reply to this | link to this | view in thread ]

  8. identicon
    Mr Rat, Mar 27th, 2006 @ 7:05pm

    fashion victims

    could Morpheus just be a fashion victim - its trendy to sue Kazaa and gang... actually I'm thinking about suing them myself - I joke - poor buggers they have so much litigation going on its hard not to feel sorry for them. Their lawyers must be rubbing their hands with glee - full time employment for another few years to come...

    reply to this | link to this | view in thread ]

  9. identicon
    PodcastingPete, Mar 28th, 2006 @ 2:26am

    Skype rocks

    Skype changed the way people speak over the internet. Sued? Bah! ---

    reply to this | link to this | view in thread ]

  10. identicon
    Ulrik, Mar 28th, 2006 @ 4:27am

    Proprietary platforms

    Phah, this is one the reasons to keep away from locked-in protocols and propritary standards. These lawsuits costs tons of money for both companies, and in the long run, it's the users who pay the bill.

    Ownership over things such as a "technology", which in many cases is simply a network protocol, and a way to communicate, will always end up in this kind of debate, which in turns slows down technical advance in many ways.

    Keep your software commercial, and do what you want with it. But the internet, and how you let your software interact with it, is and should remain free.

    I claim ownership over Esperanto.

    reply to this | link to this | view in thread ]

  11. identicon
    Lehigh Valley Internet, Mar 28th, 2006 @ 5:08am


    Its interesting to note that NONE of this came up when Skype was not being acquired! Somehow all this info comes out when the big $4.1 B figure was revealed!
    Lehigh Valley Internet

    reply to this | link to this | view in thread ]

  12. identicon
    mike, Mar 28th, 2006 @ 5:31am

    Skype is greedy

    skype deserves it, a company that allows it's end users to use stolen credit cards and then protects them deserves the legal spanking.....

    reply to this | link to this | view in thread ]

  13. identicon
    winX, Mar 28th, 2006 @ 7:36am

    Greed, software rights, Voice-over-IP

    Isn't this the staple of the digital age??

    Granted, Skype did more or less "pioneer" the technology - but didn't Gates "pioneer" Windows from his old Apple buddy?

    Who owns what these days? I concur with Ulrick.

    I can use GoogleTalk, MSN, and Yahoo to "call" people on my contact list. Who really needs to pay extra for VoIP/Skype/etc.

    Keep your paid services - I pay my ISP for Internet access - content on the web should stay free.

    BTW - Support the software developers and film/music industry. Read the .NFO file on your torrent downloads!!! If you like it - buy it.

    reply to this | link to this | view in thread ]

  14. identicon
    Andrew, Mar 28th, 2006 @ 12:41pm

    Re: Skype is greedy

    What are you talking about? Skype uses several technologies. They use CVV2 authorization, PayPal with confirmed addresses and their merchants, mainly eBay. The company has changed how we go about calling loved ones out of the country and on the computer.

    I suggest you re-think your thoughts.

    Also, does anyone understand that Skype is not a P2P? How can such a software be used for P2P? Because it has a "send file" feature? Then we need to sue yahoo, aol, google and everyone else who has a "send file" button.

    reply to this | link to this | view in thread ]

  15. identicon
    Chode, Mar 28th, 2006 @ 6:05pm


    I use Skype for both inbound and outbound calls. I suppose if they go away I will have to use some other voip solution. I rather liked Skype. Thus far it has been reliable and my only complaint is that the outbound caller id does not match my inbound number.

    I would agree with the above statement about using non proprietary protocols and such, but the problem is that nobody is providing the same services as far as I know. Telco's are doing voip but I don't ever want to deal with a telco directly again.

    MSN and others are fine for p2p, but for landline in and out, Skype was a perfect mesh.

    reply to this | link to this | view in thread ]

  16. identicon
    Mike, Mar 29th, 2006 @ 5:20am

    I agree that content on the web should stay free.
    But i guess that within 10 years 90% or more software companies will have moved to open scorce. so i just hope it happens. i use skype for my house i hope they dont go under.

    reply to this | link to this | view in thread ]

  17. identicon
    Sam, May 24th, 2006 @ 3:11pm

    With Inovation comes pointless lawsuits

    When ever someone realizes that they have made something inovative is it necessary to sue all of your competition? Or to sue the people with the inovation?

    reply to this | link to this | view in thread ]

  18. identicon
    Anonymous Coward, Jun 20th, 2006 @ 3:29pm



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  19. identicon
    Anonymous Coward, Jun 23rd, 2006 @ 7:06am



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    Anonymous Coward, Jul 1st, 2006 @ 7:40am



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    Anonymous Coward, Oct 4th, 2006 @ 8:44am



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    Anonymous Coward, Oct 4th, 2006 @ 8:47am



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    Anonymous Coward, Oct 5th, 2006 @ 5:01pm



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    Anonymous Coward, Oct 5th, 2006 @ 5:10pm



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  25. identicon
    voip requirements list, Sep 12th, 2007 @ 8:32am


    i had no idea these guys had a part in kazaa. this is definitely fishy. everyone comes out when the money gets big.

    reply to this | link to this | view in thread ]

  26. identicon
    Cat, Sep 22nd, 2008 @ 3:29pm

    I need information as soon as possible

    Agradezco si alguien pudiera ayudarme a las siguientes preguntas respecto al tema
    "Skype Founders Charged with Racketeering"

    1. Why were the founders being charged with RICO violations? Are the reasons legitimate? Why or why not?

    Alguna persona que me ayude en la respuesta de estas preguntas se lo agradecería y Dios le bendecirá.


    reply to this | link to this | view in thread ]

  27. identicon
    Internet Marketing RI, Jun 26th, 2011 @ 6:22pm

    Great Post

    I gotta Say that was a great post. keep up the good work

    reply to this | link to this | view in thread ]

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