Joost Sues Volpi for Taking Tech to Make a Web Version of Skype

Janus Friis and Niklas Zennstrom’s Joost and Joltid today announced that they have filed a lawsuit against Michaelangelo Volpi, Joost’s former president, CEO and chairman, and his current private equity firm (and Joost investor), Index Ventures. The suit claims that Volpi and Index breached fiduciary duty, interfered with prospective business advantage, misappropriated trade secrets, breached contracts, breached confidence and committed civil conspiracy.

The gist of the lawsuit is that Volpi learned how to modify Joltid’s proprietary software to run on the web without the aid of peer-to-peer software when he was transitioning Joost from a peer-to-peer service to a web-based Hulu clone. With this knowledge, he was able to pitch a version of Skype that buyers could take over from eBay while side-stepping ongoing litigation.

eBay (and logically any buyer of Skype like the group Volpi and Index are currently leading) is embroiled in litigation over using Joltid’s technology, which runs the peer-to-peer software in Skype and the old version of Joost. But eBay and Skype only have an executable version of Joltid’s code to run Skype as an application, while Joost got access to the source code in order to modify it. (Friis and Zennstrom sold Skype to eBay in 2005, and are currently suing eBay as well.) If Volpi could reverse-engineer Skype in the same way today, it would potentially be able to operate without relying on Joltid. The lawsuit alleges the value of this confidential information is in the “billions of dollars.”

The lawsuit claims that if the above weren’t true, there’s no way Volpi and Index could have bought Skype.

“Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the Confidential Information.”

“Without the GI Software, Skype simply cannot function,” says the suit. The suit quotes Volpi in the Sunday Times, “[L]itigation is one of Skype’s liabilities…We are confident we can find a way [a]round it.”

The lawsuit alleges that Volpi has not returned his Joost computer, that he tried to make a copy of the confidential information, and that he tried to hire away Joost engineers with knowledge of the code. He apparently started work on the bid to buy Skype with Index in May, before stepping down in July (and being forced out last week). The lawsuit also indicates that Friis and Zennstrom may have been trying to do this themselves — Volpi had been privy to proposed plans to acquire Skype from eBay and combine Joost with Skype.

It’s possible this could just be a personal vendetta against Volpi. Here’s the airing of grievances:

“In a very short time, Volpi burned through a substantial amount of the working capital available to Joost at the time he became CEO. Moreover, he had removed from Joost a significant portion of Joost’s innovating and market-driving technology, leaving Joost to rely on third-party technology products. Volpi’s overall business strategy failed. Moreover, it was a failure that was extremely expensive, with Joost expending tens of millions of dollars of investors’ capital.”

But to Volpi’s credit, the original software version of Joost was extremely buggy. Though he may not have gained any market share with it nor been able to take advantage of the special P2P code, at least the modified Flash version of Joost worked! Basically Friis and Zennstrom are saying, you’re damned if you use our code, and you’re damned if you try to figure out a way not to.

The lawsuit is below (thanks to TechCrunch for posting an embeddable version):