Skype Faces $4.1 Billion Racketeering Lawsuit

Internet phone service provider Skype Technologies said it plans to defend itself against explosive allegations that its technology is actually owned by another company, Streamcast Networks.

Skype, owned by eBay, of San Jose, Calif., has been accused of creating a secret shell firm in order to steal away some peer-to-peer technology developed by Streamcast, then use it to build the Skype service, according to a lawsuit Streamcast filed in January in U.S. District Court in Los Angeles.

The complaint seeks $4.1 billion in damages, and demands that Skype stop using the Streamcast features. Streamcasts complaint was first reported upon the week of March 27 by Andy Abramson of the Web site VoIP Watch.

The defendants are Skype and its co-founders. eBay is not named in the suit.

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When asked for comment, Skype spokesperson Kat James replied on March 29 that Skype has “not yet been formally served but are aware of the claim. This case has absolutely no merit and if necessary, we will defend ourselves vigorously.”

“We believe in the claims,” responded Charles Baker, Streamcasts lead attorney. “Or else we wouldnt have filed the suit.”

The Streamcast-Skype case pits old rivals against each other again.

Streamcast Networks, of Los Angeles, distributes the P2P software Morpheus, which is primarily used to swap files of digital music, videos or text over the Internet.

Morpheus competes with Kazaa, a peer-to-peer software application from Sharman Networks. The Kazaa application was originally developed by Skypes co-founders.

The suit emerges just as Skype is growing at an accelerated rate. At the beginning of January 2006, just three months ago, there were 3 million or so users of the service at any one time. Earlier this week, Skype had over 6 million simultaneous users.

/zimages/6/28571.gifRead morehereabout how Skype has been winning over critics with its recently updated features.

The litigation is also another one of several recent important legal challenges concerning intellectual property rights, from which many legal experts expect to see a new kind of patent law emerging.

Of particular note in this regard, on March 29 attorneys for eBay and a small software firm, MercExchange, based in Roanoke, Va., argued before the U.S. Supreme Court over whether eBay should be ordered to stop using its “Buy Now” feature, based on technology a jury determined was created by MercExchange.

These cases follow the recently settled patent spat between Research In Motion, maker of the BlackBerry, and patent holder NTP. The legal tussle nearly shut down the much-beloved BlackBerry pager service. That case too turned on patents.

“Theres so many things going on in this arena, right now,” Streamcasts attorney Baker said. “Its ever-evolving. One day after another after another.”

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