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3/27/2006
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Skype Founders Sued For Racketeering

The suit claims that peer-to-peer client maker Kazaa, also founded by Skype founders, violated StreamCast's exclusive rights to the technology behind Kazaa by selling it to a shell company.

StreamCast Networks Inc., the company behind the Morpheus peer-to-peer file-sharing client, has filed suit against VoIP company Skype Technologies SA and its founders on racketeering charges. The lawsuit claims that peer-to-peer client maker Kazaa B.V., also founded by Skype founders Niklas Zennstrom and Janus Friis, violated StreamCast's exclusive rights to the peer-to-peer technology behind Kazaa, known as FastTrack P2P, by selling it to a shell company.

The suit charges that Zennstrom and Friis secretly sold FastTrack despite StreamCast's contractual right to prevent the deal, and that the defendants shut down StreamCast's Morpheus network and transferred its user base to Kazaa. Skype comes into the picture in a more indirect route. The suit says Skype uses FastTrack technology to transfer calls across the Internet and notes Zennstrom and Friis have "profited handsomely" from Skype's $4.1 billion sale to eBay.

Because of all this, StreamCast says its network and business was irreparably harmed. The plaintiff says that since Skype uses FastTrack or strongly derivative technology, StreamCast should get all proceeds from the eBay-Skype deal and gain control of FastTrack. Damages also are being sought from the other defendants, though Skype clearly has the most money at stake. Skype said it had no comment on ongoing litigation.

StreamCast's dispute with Zennstrom and Friis extends back to at least March 2002. Zennstrom blocked StreamCast from an upgraded version of FastTrack after what he said were billing problems. Morpheus was largely temporarily shut down as a result and Kazaa soon after offered a software migration tool for users to switch from Morpheus to Kazaa.

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