Saturday, August 01, 2009

Is Skype to be Joltid by Kazaa Developers? Was the $2.6 Billion eBay Purchase of Internet Telephony made without the underlying P2P Software ?

Loz Blain at covers the strange dispute between Skype and Joltid under the headline: Licensing issues threaten to shut Skype down for good:
"When eBay bought Skype from Joltid in 2005, the whopping US$2.6 billion price tag didn't include the Global Index peer-to-peer software that the world's biggest Internet Telephony system is based on....

[E]xcerpt[s] from a
quarterly report filed with the US Securities and Exchange Commission explain ... eBay's tenuous position [inter alia] ... :

'Joltid has alleged that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement.'
techdirt has a very informative posting in the same vein about Skype Founders Claim eBay No Longer Has A Right To Skype's Core Tech in which they write:
"Apparently, the claim is that Niklas Zennstrom and Janus Friis and a separate company they ran, Joltid, only licensed the underlying technology to eBay/Skype for a limited time -- and that deal has now concluded. The two companies are scheduled to fight this out in court....

How the hell did eBay make a deal and not make sure it had either purchased (entirely) the core underlying technology or had a guaranteed perpetual license that couldn't be revoked? ... you have to wonder if it's actually true.

In the meantime, since there are questions about how eBay can rebuild Skype's underlying core technology without violating the many patents in the space, it makes you wonder if eBay may be forced to simply buy someone else's technology."
As Loz Blain writes, this legal dispute is a problem for IPO plans of eBay:
"[T]his legal challenge could completely shut Skype down - so naturally enough, that black cloud will scuttle any IPO plans that eBay had to raise money from its difficult child.

If eBay is able to come up with an alternative platform that keeps Skype's customers happy while abandoning Global Index and not causing any IP issues then it can go ahead with an IPO. But this is a herculean undertaking that even eBay admits it's not very confident about. Given it's already a cash sink for eBay, you'd have to wonder if the company is likely to throw big dollars at developing or acquiring another technology.

But if June 2010 comes around and eBay hasn't sorted anything out, and the court case starts looking like it's going Joltid's way, then suddenly Joltid will be in an excellent position to put in a bargain-basement offer to buy Skype (and its projected US$1 billion 2011 revenue) back from eBay and laugh all the way to the bank.

With the future of the world's favorite Internet Telephony service at stake, it will be fascinating to see how this plays out."

In any event, this is a bizarre development - not unusual for this treacherous legal field - where the creators of the world's worst offending illegal file sharing applications are now themselves relying on intellectual property law to protect their alleged IP rights.

The court proceedings in the Joltid case are scheduled for June, 2010.

Joltid is a company which was initially affiliated with Kazaa, a file sharing application used mostly for illegal music piracy. As written at the Wikipedia:
"Kazaa and FastTrack were created by Niklas Zennström, Janus Friis, and Priit Kasesalu (all of whom were later to create Skype and later still Joost). It was introduced by their Dutch company Consumer Empowerment in March 2001, near the end of the first generation of P2P networks typified by the shutdown of Napster in July 2001....

Consumer Empowerment was sued in the Netherlands in 2001 by the Dutch music publishing body, Buma/Stemra. In November 2001, the court ordered Kazaa's owners to take steps to prevent its users from violating copyrights or else pay a heavy fine. Consumer Empowerment responded by selling the Kazaa application to a complicated mesh of offshore companies, primarily Sharman Networks, headquartered in Australia and incorporated in Vanuatu....

Kazaa's legal issues have ended after a settlement of $100 million in reparations to the recording industry. Kazaa, including the domain name, has since been sold off to Brilliant Digital Entertainment, Inc. Kazaa currently operates as a monthly subscription service that allows users to download unlimited songs for $19.98 and listen to them on up to three other computers. However, songs downloaded with Kazaa are not playable on portable devices, and cannot be listened to without an active subscription to the service.

Some users still use the old network on the unauthorized versions of Kazaa, either Kazaa Lite or Kazaa Resurrection, which is still a self-sustaining network where tens of thousands of users still share unrestricted content. This fact was previously stated by Kazaa when they claimed their FastTrack network was not centralized (like the old Napster), but instead a link between millions of computers around the world.

However, in the wake of the bad publicity and lawsuits, the number of users on Kazaa Lite has dropped dramatically. They have gone from several millions users at a given time to mere hundred thousands or now just tens of thousands. Before, all users were combined on the same FastTrack network, with some using the ad-supported Kazaa, and others using Kazaa Lite and other non-authorized versions all sharing countless songs, movies, etc. The size of the lawsuits Kazaa settled is said to only have been insignificant compared to the amount of media that was illegally duplicated and delivered to millions of users on Kazaa prior to the suit.

Without further recourse, and until the lawsuit was settled, the RIAA actively sued thousands of people across the USA for sharing copyrighted music across the network. College campus networks were also a focus of the RIAA's many lawsuits. Many of these cases are still in the process of being settled or are headed for trial. Although the lawsuits were mainly in the United States, other countries also began to follow suit....

Kazaa has, from early on, been suspected of installing malware onto users' computers. Sharman, Kazaa's home company, claims that the products are not adware and do not collect personal user information. At one time, the part of the Kazaa code which was considered adware was an optional part of the Kazaa program, albeit one technically difficult to omit during installation. Since the allegations have surfaced, however, the code has been bundled into the main Kazaa software, and it is not possible to uninstall it. Also, spyware detection and removal software has frequently failed to delete the code without special actions taken by the PC user. Spyware components detected and deleted by removal programs will often render Kazaa unusable and require reinstallation of the program. This forces the user to allow these programs on their computer to keep Kazaa working. The malware cannot be ended with conventional methods, and the Windows Task Manager must be used."
Given its shady background, it is little wonder that Joltid has only a one-page web presence without any contact details or addresses outside of an email address that might be used to inform the Joltid owners what one thinks about their threat to shut down Skype.

In the case of Joltid we have here - in our opinion - another typical IP instance of overly greedy intellectual property rights holders who are prepared to try to hold a good share of the world's communication population (480 million registered Skype users) for ransom simply because of their own petty personal selfish interests. We have little patience with such philosophies.

IP rights holders in general must be told time and again in strong and stern judicial language that intellectual property rights do not somehow bestow world imperial rights upon them.

Indeed, quite apart from the legal issues, IP rights holders who have already pocketed $2.6 billion for the Skype sale but who still have no qualms about threatening a shutdown for the community of Skype users should in fact - in our opinion - be permanently exiled from the global technological community.

Alas, the realities of the digital world are neither just nor fair, and the founders of Kazaa and Skype are already long off on another project, Joost, financially supported by a bevy of eager venture capitalists whose sole business is the prospect of multiplying dollar signs.

That is the true face of modern technology: cash rules.

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