This week the two Joltid and Joost founders fired Joost chairman Mike Volpi, saying he was being investigated for possible fraudulent activities relating to their intellectual property and they had Joltid file a suit in the States against eBay which alleges the Skype operation they had sold to eBay is violating Joltid’s intellectual property rights at the rate of $75 million per day.
Any dealings that involve Niklas Zennstrom and Janus Friis, the two people who founded the biggest music piracy site ever, in a blatant violation of intellectual property laws, are likely to be complex and murky. Thus, when eBay acquired Skype from Zennstrom and Friis, the pair did not sell eBay the P2P network technology that is essential to Skype’s ability to function. Instead, the technology is owned by Joltid, which is controlled, if not completely owned, by Zennstrom and Friis.
After selling their pirate site Kazaa.com to an Australian company called Sharman Networks and just prior to selling Skype to eBay, the two founded Joost as an online video service offering TV shows and movies.
They promised Joost would bring major innovations to and cause structural changes in the way the TV and movie industry distribute content. Perhaps they thought they could have the same financial success as when they were helping give away billions in music. The music recording industry has never recovered financially from piracy Web sites like Kazaa and others.
Having to actually perform a service other than just giving away someone else’s intellectual property turned out to be harder than the two anticipated, however, and Joost is now barely afloat.
Joost was done in by poor-quality videos (it had promised the best video quality on the Net), an awkward user interface (after promising it would be simple and intuitive) and a poor selection of TV shows and movies. It’s certainly not surprising that the studios and TV networks wouldn’t trust them with “must see” shows after what the two had done to the music industry. On June 30, the company said it was closing down the online service and would try to sell the Joost service or the technology.
In March of this year the UK based Joltid notified Skype that Skype could no longer use Joltid’s Global Index (GI) technology, without which, by eBay’s own admission, Skype would have to be closed down. That same month Skype sued Joltid in a British court asking the court to confirm its rights to use the Joltid technology, but the suit isn’t expected to go to court until at least next June. In the meantime Skype has been trying to develop its own technology to use in place of Joltid’s.
After eBay struggled for several years to make its ill-advised acquisition of Skype successful, it said a few months back it would sell Skype or take it public. Zennstrom and Friis were the first to say they wanted it, albeit at far less than what eBay had paid them for it.
EBay spurned their offer and agreed to sell 65% of Skype to a consortium of investors and keep 35%. The investors included Silver Lake, the UK-based Index Ventures, Andreessen Horowitz, a VC firm that Netscape founder Marc Andreessen runs, plus the Canada Pension Plan Investment Board. As a result, Zennstrom and Friis sprang into action.
First, Joost shareholders (mainly or perhaps solely Zennstrom and Friis and/or companies they control) this week ousted Joost chairman Mike Volpi. Joost shareholders said Volpi was being investigated for actions he took while he was Joost CEO and chairman – no doubt related to the Skype matter.
Volpi had continued as Joost chairman after resigning as CEO when Joost closed its online services. He joined the VC firm Index Ventures, which was part of the consortium that successfully bid for 65% of Skype. (The dots are beginning to connect.)
A report in the London Times said the investigation is thought to be about intellectual property issues. Zennstrom and Friis had attempted to enter their own bid for Skype and perhaps felt Volpi had gone behind their back. Perhaps the two don’t like someone doing to them what they did to the music industry – using someone else’s intellectual property without authorization to make a profit.
“Mr. Volpi was removed from the board of directors and from his position as chairman of Joost by shareholder vote,” Joost said in a written statement. “The company and its board of directors are conducting an investigation into Mr. Volpi’s actions during his tenure as CEO and as chairman.”
Volpi would only tell Reuters, “I am no longer associated with Joost,” and then only by e-mail. Prior to joining Joost in June 2007, Volpi had been one of Cisco’s promising young executives and was on the board of Skype.
Next the Zennstrom and Friis-owned Joltid filed a suit this week in a Northern California court against Skype for $75 million a day in copyright infringement, starting in March of this year when they had told Skype that it no longer had the right to use the technology.
They are asking for all the profits that Skype has made since Joltid told Skype it was in breach of its license. The suit says Joltid thinks damages “are amassing at a rate of more than $75 million daily.”
Joltid’s suit is based on the use of P2P software called Global Index (GI), which Joltid says it fully owns and did not sell to eBay. It said it fully owns the software as a result of various copyrights and patents. The Joltid suit says that in 2007, about two years after eBay acquired Skype, the Skype founders learned that eBay had acquired “unauthorized versions of the GI software source code” and had “created unauthorized modifications” to it and had also shown it to “third persons” without authorization.
The suit says, “Despite Joltid’s demands [that it stop using the software], Skype has continued to make its application available for download.”
The GI software, the suit says, creates a self-organizing and self-healing distributed storage, transportation and data object management system that eliminates the costs of traditional datacenter solutions and enables a range of applications from communications to broadcasting and beyond.
The firms that agreed to buy 65% of Skype from eBay are also named in the suit. They had reportedly investigated at length the possibility that Joltid founders Zennstrom and Friss might take the matter to court.
The New York Times reported that John Pluhowski, an eBay spokesman, said the suit’s allegations “are without merit and are founded on fundamental legal and factual errors.” Pluhowski also said eBay “remains on track to close the transaction in the fourth quarter of 2009.”
One item in eBay’s sale of 65% of Skype has subsequently been made public. In the document eBay filed with the Securities and Exchange Commission relating to the sale, it said:
“Consummation of the sale is subject to, among other conditions…no settlement of the pending litigation with Joltid Limited having been effected without the consent of the Buyer (subject to certain limitations). See the complete filing here.
What we need to see next, of course, is the agreement under which eBay acquired Skype to determine whether eBay should have realized it was getting snookered or whether eBay had the right to use and modify the GI software. It might also clarify whether one-time Joost CEO and now Index Ventures employee Volpi was involved in the eBay-Joltid matter.
We said the matter was complex but think the story must be told to its ultimate end, the story being how the world’s two biggest Internet music pirates are operating with their ill-gotten gains. When the Australian record labels convinced an Australian court to force the Sharman-owned Kazaa.com P2P pirate site to close down, Zennstrom and perhaps Friis were forced to pay the labels unspecified millions in copyright damages.
No one else has ever caused so much financial damage to the entertainment industry – and now possibly to eBay.
More will surely follow.