Skype Founders In Racketeering Scandal
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StreamCast Networks, owners of the peer-to-peer file sharing platform Morpheus are suing Skype, Kazaa and founders Niklas Zennstr_m and Jaanus Friis over a core technology it claims they sold to eBay as part of the Skype acquisition.

StreamCast is using the Racketeer Influenced and Corrupt Organizations Act (RICA) as the platform for its attack and it seems the most likely objective is money.

The court documents (which have not yet been made officially available) seeks a restraining order on the use of the technology and damages.

It’s a little complicated, but we’ll try to get this right even though details are still a little sketchy. The story line starts back with Zennstr_m and Friis developing the now infamous Kazaa file sharing program. Like many other similar programs the application is built using a technology called FastTrack which was developed by Estonian programmers headed by Jaan Tallinn, with Ahti Heinla and Priit Kasesalu under contract to the Kazaa/Skype boys.

Now when things got a little hot in the kitchen and Zennstr_m and Friis bailed out of Kazaa, they worked with the same Estonian programmers to develop the Skype application. Though Skype has been extremely coy about giving away too much about the workings of its VoIP service, it’s fairly obvious it uses some sort of P2P technology.

If this case comes to court we may find out a little more about how this growing security risk operates under the hood, which would be a good thing.

Anyway, in bailing out of the Kazaa operation its founders sold the program a Sharman Networks which is based in Vanuatu, though its main offices are in Sydney, hence the local Kazaa trial. The whole deal was described by the Washington Post as a ‘shell game’ used to elude prosecution. It’s exactly what went on, what was sold and who now owns it that would become the focus of any trial if this case goes to court.

Kazaa and StreamCast’s Morpheus both used the same FastTrack technology developed by the Estonians. Once the acquisition of Kazaa by Sharman was complete, Morpheus users were cut off from the network. A bit of a tussle ensued, but in the end StreamCast found a new platform for Morpheus and Kazaa, well we know about Kazaa.

One of the key points in the Kazaa prosecution has been whether it is a centralised or de-centralised network. This was an important point in the Kazaa trial as the FastTrack technology it was launched with used a distributed, movable index compared to its forerunner Napster which relied on company operated servers to maintain the index.

This was Napster’s undoing in the courts and it also placed significant strain on the servers when the user base grew astronomically. Tallinn built FastTrack in a different way where the system independently searched for suitable servers attaching to the network and used them to hold the indexing.

Now while the Kazaa trail in Australia found that Sharman had breached copyright through its failure to attempt to curtail illegal file-sharing it did not find that the system was a centralised one, indicating that it most likely was/is still based on the FastTrack protocols.

That’s almost a sideline issue, because StreamCast is suing Zennstr_m and Friis, their company is now all cashed up after selling Skype to eBay for US$4.1 billion last year.

StreamCast alleges that the FastTrack P2P software remained the property of Zennstr_m and Friis and was used by their company Skype Technologies as the core underlying technology powering the VoIP application. It was Tallinn and his team of Estonian programmers that put together Skype for Zennstr_m and Friis, so there is a distinct possibility.

StreamCast claims that under the terms of their original deal with Zennstr_m and Friis (when they owned Kazaa), was that they would give them their first right of refusal to acquire FastTrack if they ever offered it to a third party. The StreamCast suit seems to allege that they sold the technology when the Kazaa to Sharman, but through the Vanuatu “shell game” transferred the technology to Skype which was sold to eBay, in breach of the original agreement.

The court documents do not name eBay as a respondent.

But since the “shell game” in 2002 when Kazaa ownership was transferred to a shelf company in Vanuatu, nobody outside the deal really knows who owns what. StreamCast at one point accused Kazaa of being a centralised network, something the legally besieged company could not admit to if it wanted to maintain in an Australian court that it had no control over what was swapped on the network using its application.

There was not much evidence to go on, until the Kazaa case and no money until the Skype acquisition to make such a suit worthwhile.