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Skype-Joost Licensing Drama Déjà Vu for Friis & Zennström

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Many people in the online video space are trying to make sense of the lawsuit Joost filed against former chairman and CEO Mike Volpi earlier today. The lawsuit has something to do with the supposed revelation of trade secrets in connection to the sale of Skype to a group led by Volpi’s new employer Index Ventures (which is also named in the suit, as it invested in Joost). But what does a failed video startup have in common with a VoIP operator? The answer comes down to one name: Joltid.

Joltid is a P2P technology provider incorporated in British Virgin Islands. It is owned by Joost and Skype founders Janus Friis and Niklas Zennström, and its tumultuous history makes the current fight with Volpi, Skype and eBay (s EBAY) look like nothing special. Licensing conflicts that lead to the potential shutdown of a market leader? Been there, done that.

The roots of this conflict were planted all the way back in 2001, when file sharing was all the rage and Napster was being sued by the music industry. That was when Friis and Zennström came up with the idea of Kazaa, a file-sharing network based on a distributed database that would operate without central servers. The duo decided early on to apply this distributed architecture to the structure of their business as well.

Kazaa’s code was developed under contract by a startup in Estonia, with all of the work being coordinated from the Netherlands. Kazaa became Zennström and Friis’ flagship peer-to-peer product, but the idea was always to license the underlying P2P technology through a separate corporate entity called FastTrack BV. FastTrack’s code became part of a number of file-sharing clients such as Grokster, Morpheus and iMesh.

Morpheus proved to be especially successful and eventually managed to get more users than Kazaa itself. Then, out of the blue, the Morpheus client stopped working in early 2002. It quickly became clear that FastTrack had shut down the client by denying it access to its P2P network. Morpheus alleged at the time that this was a ploy to steal its user base and once again make Kazaa the most popular file-sharing client. Friis and Zennström had a different take and argued that Morpheus had failed to pay its licensing dues.

Morpheus quickly switched to an open, licensing-free technology to keep its service running, but had trouble providing a stable version of its client for some time and, in turn, lost countless users to Kazaa. The company filed a number of lawsuits against Friis, Zennström and related companies, but failed to convince the courts and eventually shut down due to overwhelming legal fees.

The Kazaa founders, on the other hand, were forced to sell their P2P client in light of mounting legal pressure, but held onto their P2P technology, which they continued to license through Joltid. Kazaa’s P2P core not only continued to power file-sharing networks, but also became the basis of Skype and eventually Joost, and Joltid in turn became a little-known but influential P2P powerhouse.

Fast-forward a few years: Kazaa and all of the file-sharing clients that used its technology have shut down. Joost abandoned its P2P roots under the leadership of Volpi. Skype is getting sold. eBay turned down an offer by Friis and Zennström, and the duo, seeing its influence wane, once again mounted a fight over licensing issues. Funny how history repeats itself, isn’t it?

Of course, the struggle and eventual demise of Morpheus isn’t exactly a good omen for Skype. But how does the lawsuit against Volpi fit into the picture? Joost and Joltid allege that Volpi gained insights into the inner workings of Joltid’s P2P technology through the process of bringing the video service to the web, and that this knowledge would help to develop a Skype version that doesn’t rely on P2P.

That’s a pretty dubious claim. Joost replaced P2P video delivery with Flash-based streaming. Skype, on the other hand, would have to switch to SIP and deal with issues like NAT traversal that just don’t matter if you operate a centralized streaming service. It’s like two very different vehicles that once shared the same road. Looking under the hood of one of them won’t help you to drive the other one.

However, if the Morpheus spat has taught us anything, it’s that this won’t end before at least one of the cars has been scrapped.