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Skype Faces $4.1 Billion Lawsuit Over Racketeering Charges
TMCnet Contributing Editor
Racketeering charges have been filed against founders of Skype and developers of Kazaa by StreamCast Networks, maker of the Morpheus file-swapping software. Alleging that the defendants committed numerous violations of the Racketeer Influences and Corrupt Organizations (RICO) Act, StreamCast also claims that it owns the software used by the peer-to-peer Internet phone service.
A jury in the US District Court in the Central District of California is being asked to award a sizable sum to StreamCast. The company is seeking $4.1 billion in damages as well as the profits from the $2.6 billion sale of Skype (News - Alert) to eBay.
While eBay is not named in the suit, Skype founders Niklas Zennstrom and Janus Friis as well as Kazaa’s new owner, Sharman Networks, are all defendants in the case.
Court papers allege that Skype, Kazaa and several other defendants devised a complex overseas shell game in order to steal and wrongfully profit from technology that rightfully belongs to StreamCast.
StreamCast claims that peer-to-peer client maker, Kazaa B.V., which was also founded by Skype founders Zennstrom and Friis, violated the company’s exclusive rights to the peer-to-peer technology behind Kazaa, known as FastTrack P2P, by selling it to a shell company.
StreamCast charges in the suit that FastTrack was secretly sold by Zennstrom and Friis, despite StreamCast’s contractual right to prevent the deal. The company also alleges that the defendants shut down StreamCast’s Morpheus network and transferred the user base to Kazaa.
The tie-in to Skype comes in the accusation that Skype uses FastTrack technology to transfer call across the Internet. The suit notes that Zennstrom and Friis have profited substantially from Skype’s $4.1 billion sale to eBay.
It is because of all of this that StreamCast maintains that its network and business was irreparably harmed. The company takes the position that because Skype uses FastTrack or strongly derivative technology, StreamCast should get all proceeds from the eBay-Skype deal as well as gain control of FastTrack.
Damages are being sought from the other defendants, however, Skype clearly stands to loose the most money.
This dispute between StreamCast and Zennstrom and Friis can be traced back to March of 2002 when Zennstrom blocked StreamCast from an upgraded version of FastTrack. Zennstrom claimed the bloc was due to billing problems, but it resulted in Morpheus being largely temporarily shut down and Kazaa soon after offered a software migration tool for users to switch from Morpheus to Kazaa.
So, is this latest filing revenge by a scorned company or have Zennstrom and Friis engaged in illegal activities that have cost StreamCast billions of dollars in revenue and customer base? It is possible that in this case, both could be true.
The allegations made by StreamCast make for a strong case. However, the history between StreamCast and Zennstrom may not play in the company’s favor. Add to that the amount of money being sought and the company may have a tougher case to prove than it at first appears. Fortunately, we can leave that for the jury to decide.
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