Former KaZaA Engineer: eBay Can’t Replace Joltid Code

Intrigue and mystery envelope the legal battle between Joltid Ltd on one side and the current and would-be owners of Skype on the other. We know that the parties are in conflict, and that the stakes are high, but how much do we know beyond that?

I will do my best here to shed new light on the situation. First, let’s understand the context. When that’s done, I will present new information that suggests Joltid is well placed to get what it wants. I presume what it wants is full or partial ownership of Skype.

Joltid filed a lawsuit in U.S. District Court in Northern California on Wednesday. The suit alleges that eBay, Skype’s current owner, and Skype’s new investors — Index Ventures, Silver Lake Partners, Andreessen & Horowitz, and the Canada Pension Plan Investment Board – are in violation of copyright law. Owned by Skype founders Janus Friis and Niklas Zennstrom, Joltid seeks damages of more than $75 million for each day that Skype operates.

eBay says the Joltid lawsuit and the claims it contains are without merit. eBay also says it is developing software that eventually will replace the Joltid code. I have learned that might not be possible.

To understand why, one has to delve into a bit of history. Let’s start with Zennstrom and Friis, peer-to-peer impresarios who have launched a succession of varyingly successful companies in their eventful careers.

They started with software called FastTrack, which was used as the foundation for KaZaA, a P2P file-sharing company that gave the music industry fits.

After KaZaA, Zennstrom and Friis applied the same P2P principles and much of the same software foundation to web-based VoIP. That’s how Skype was born.

From there, after eBay acquired Skype in 2006, the duo of Zennstrom and Friis founded video-sharing company Joost, which eventually attracted Cisco wheeler-dealer Michael Volpi, who served as its CEO and chairman until a short time ago. The Joost joust is another bone of contention in the Skype soap opera; it seems intensely personal, and I do not pretend to fully comprehend the underlying dynamics.

It’s hugely significant that eBay did not procure Joltid’s key P2P software assets when it acquired Skype. In light of what I will disclose, that oversight turned out to be an error more egregious than most people realize. Its consequences extend beyond the current sequence of litigation, which began earlier this year, in the UK, when Skype filed a claim against Joltid.

This is where I have some new information to offer. I corresponded by email earlier this evening with Julian Cain, a software engineer who worked on KaZaA and also is familiar with Joltid, bluemoon, and Skype. I contacted Cain because I was intrigued by a comment he made earlier this year in reply to a blog post from Tom Keating at TMCnet.

Specifically, I asked Cain whether Zennstrom and Joltid had the capability to technically bring down the Skype network. From what he had said earlier this year, and from what I’d read in a Fortune article by Roger Parloff of many years ago – which described how KaZaA brought down P2P file-sharing networks (Grokster and Morpheus) it accused of software-licensing transgressions – I had a suspicion that Joltid was more than technically capable of playing Skype saboteur.

Here’s what Cain wrote in reply to my message:

Ebay, Inc. and Joltid, Inc. are keeping a lid on the infraction. Nobody is reporting anything because they do not know the details. In fact, they (Joltid) were here in the USA last week in California, but have since departed.

But to answer your question (about whether Skype could be brought down remotely by Joltid), yes, they have the technical ability to revoke the rights of the SkyLib (a cross-platform library written in C++ that underlies the functionality of Skype on all client platforms) remotely. Joltid CAN inject algorithms into the SkyLib ad-hoc overlay network remotely. What they did with Grokster was not advanced and also didn’t use cryptographically secure methods, as they were home rolled. SkyLib does, however, use a proper PKI.

The question you must ask yourself is this: Did Joltid, Inc. hand over their Root Certificates with the acquisition of the Skype Client? No, they did not.

This is a political agenda and not what you might think.

What Cain told me in the above email is similar to the comment he contributed to a blog post by Tom Keating over at TMCnet. Here are excerpted remarks from that comment:

The FastTrack p2p library has built in code functions to disable encryption, much like revoking a signed key, just using really bad crypto code. The end result is an inoperable p2p library.

Skype wasn’t built directly from the FastTrack p2p stack, it is another source tree/ project and uses PKI properly instead of home-grown crypto code.

Joost wasn’t built from the FastTrack nor Skype source tree; it, too, is another project.

So what we have here is very simple, Joltid doesn’t and never has sold their p2p code to anyone, ever. I tried to make this public to ebay at the time of acquisition but as the first poster said it was a “rushed decision” so nobody cared.

This is a trend with Zennstrom and it is how he wins every time.

Lastly, I personally believe that they can take Skype off the Internet remotely as they did to Grokster, and since they did it to a very large audience I don’t see why this case is any different from the first.

Conclusion: Buyer beware and don’t lease software that can be disabled remotely by the vendor. Also, never purchase or lease software that is self encrypted, compressed or obfuscated because it’s not intellectual property that is being hidden, it’s always something else, and I say this because I can circumvent their “binary protection” code and what I have seen is nothing short of scary.

In subsequent correspondence I had with Cain, pertaining to whether eBay can build its own software to replace the code it licensed from Joltid, he wrote the following:

“Ebay, Inc. is not building their own technology to replace SkyLib as it’s a technical impossibility without starting over again from GUI to guts.”

If what Cain says is accurate, Zennstrom and company have the current and aspiring owners of Skype in more than just a legal bind. Some sort of accommodation will have to be reached, or Skype could be taken offline, either technically or in court.

To put it mildly, that would be an undesirable outcome for all involved.

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Microsoft and Google: Different Approaches to Web Apps

As Microsoft begins previewing its Office Web Apps — lightweight, online versions of Word, Excel and PowerPoint that will compete for hearts and minds against Google Web Apps — it’s interesting to observe the divergent positioning the companies have taken.

Rob Helm, an analyst with Directions on Microsoft, does an excellent job describing the contrasting approaches:

“Google is trying to catch up with Microsoft’s desktop applications, maybe cover 80% of their functionality. But they’ve got a long ways to go . . . .

“Microsoft is instead trying to promote an adjunct to Office to use when you’re collaborating with people, and to handle some commenting and formatting, and maybe entering a little text. Microsoft has a much narrower view of what Web apps are supposed to do. They’re very carefully limiting the Web apps, so they really aren’t a substitute for the desktop.”

Initially, Google will target the federal government and its agencies. There are security, availability, reliability issues surrounding Google’s web-based applications, but the federal government might be a receptive audience, looking for cost-effective alternatives to Microsoft’s dominant Office suite.

Meanwhile, Microsoft’s approach, using Web applications as collaborative adjuncts to the Office franchise, makes considerable sense. Microsoft calculates that it will take a long time before Google is ready to tear into the Office installed base with a feature-rich web-based suite. Similarly, Microsoft knows that enterprise concerns about the availability and security of cloud-based applications won’t dissipate overnight.

In Microsoft’s view, why should it prematurely or unnecessarily cannibalize its Office franchise? The revenue implications of such a move aren’t palatable. Eating one’s own isn’t appetizing, even when it is imperative. For now, Microsoft just doesn’t feel the need. It’s hard to refute that logic.

Valley Not the Place for America’s Young and Wealthy?

More than a few denizens of Silicon Valley think they reside in the center of American wealth creation, if not the center of the universe.

According a study from market-researcher Nielsen Claritas, though, America’s young and wealthy are voting with their well-heeled feet and congregating in the environs of Washington, D.C.

First the data-center investments went east, and now the young and wealthy appear to be making the same pilgrimage.

San Francisco held the top spot in Nielsen’s young-and-wealthy rankings back in 2000, but it has slipped to third spot, falling along with dot-com fortunes. No other county in the Bay Area cracked the top ten.

Canada Okays Ericsson’s Nortel Wireless Acquisition

Canada’s federal government has decided not to review Ericsson’s $1.13B acquisition of Nortel’s wireless assets.

According to Industry Minister Tony Clement, the deal is beneficial to Canada and no national-security concern exists to warrant a federal review. It’s bad news for Research In Motion (RIM), which was hoping the Canadian government would intervene on its behalf.

Even though Nortel did not cede ownership of the LTE patents when it auctioned off its wireless business, Ericsson obtained the rights to license the patents on a non-exclusive basis.

Although RIM hasn’t explicitly revealed its designs on Nortel, the Blackberry vendor appears to want to own the LTE patents and all the licensing rights associated with them. If RIM were to own the patents, it would not want a major licensee, such as Ericsson, getting them at no charge.

Nortel has yet to indicate how it will dispose of the LTE patents.

Ericsson, which has 1,900 employees in Canada, will welcome 800 Nortel employees into its corporate bosom. That was one of the reasons Clement claimed the acquisition would contribute to Canadian jobs as well as to ongoing technological innovation in the country.

The news isn’t as good for many employees in Nortel’s enterprise business, won at auction earlier this week by Avaya. A Canadian Press report suggests that approximately 40 percent, or 400, or Nortel’s enterprise employees in Canada could lose their jobs.

Next up for grabs in the ongoing Nortel dissolution is the company’s Metro Ethernet Networks (MEN) business unit. While initial estimates suggested the MEN assets might go for $750 million, some analysts now say they could fetch as much as $1.5 billion.

Given the relatively high amounts that Nortel’s wireless and enterprise assets have drawn at auction, I wouldn’t summarily dismiss the possibility that the MEN assets will attract similarly strong bids. That said, I don’t see the same competition for the MEN assets that existed for the others.

Liberate Technologies: Taking Strange to New Levels

The tortuous tale of Liberate Technologies should be made into a movie. It’s a bizarre, strangely compelling story that could benefit from the Hollywood treatment.

Thanks to the interest in Liberate, I’ve continued to look into the company and its surreal history.

If you go way back, you’ll discover that Liberate began life as an Oracle Corp. operation in the 1990s. It was originally established to build network computers, those thin-client terminals that Larry Ellison and Scott McNealy unsuccessfully foisted on the world when people weren’t spending so much of their time on the web.

Oracle later spun it off as a company that developed software for digital cable-television systems, including set-top boxes. When it had its initial public offering (IPO) back on July 27, 1999, Liberate raised $100 million. The Oracle Corp spin-off sold 6.25 million shares at $16 each. The price had been upped before the sale to $14 to $16 from a previous range of $11 to $13. As of early October of that year, its shares has risen more than 160 percent.

Investment shenanigans ensued, lawsuits followed.

That misadventure aside, Liberate established technology partnerships with Cisco, its strategic investor, as well as with Broadcom and RSA Security, among others. It had illustrious board members from well-known industry behemoths.

In 2000, David Nagel, CTO of AT&T and president of AT&T Labs, was one board member, as was Tom Nagel, an executive with Cox Communications. James Barksdale, formerly CEO at Netscape, also was on the board, along with Larry Ellison. The company’s CEO and president was Mitchell Kertzman, who had been the CEO of Oracle database competitor Sybase and is now with VC firm Hummer Winblad.

Using its stock as currency, Liberate announced early in 2000 that it had acquired MoreCom, a cable-technology firm, for a whopping $561 million. Unfortunately for MoreCom and its investors, Liberate’s share price fell steeply before the deal was consummated.

Cisco Systems pumped $100 million into Liberate Technologies. AOL also had a significant stake in the company, as did Sony Corp. All of the above wanted to ensure that Microsoft didn’t control the market for interactive television.

Late in 2000, the company launched the Liberate Corporate Venture Fund, a $50-million fund dedicated to accelerating the development of interactive television. The fund invested in Two Way TV, a developer of interactive gaming and enhanced-TV applications, and several other startup companies.

Liberate issued a steady stream of press releases about customer engagements, new technology partnerships, and extensions of existing strategic relationships.

As late as March, 2001, Liberate’s prospects remained reasonably bright. Its shares surged 12 percent after the company topped estimates for the seventh consecutive quarter. Market analysts uniformly sang the company’s praises, with many describing Liberate’s core business as “recession-resistant.”

Later that year, Forbes referred prominently to Liberate in an article about an interactive-television market “expected to be quite large .”

A year later, though, Liberate had entered a steep descent. By 2003, it was slashing jobs and restructuring. Its shares had been delisted from NASDAQ, and an SEC investigation had been launched into the company’s revenue-recognition and accounting practices. In addition, the company was dealing with a patent-infringement lawsuit filed by OpenTV, one of its competitors.

It was all downhill from there. In early 2005, Liberate agreed to sell the assets of its North American business for $82 million to Double C Technologies LLC, a joint venture between Comcast and Cox Communications. Later that same year, SeaChange International acquired Liberate’s non-North American assets for $23.5 million.

That was it. Or was it?

Reanimated, Liberate tried to get into an industry a little less abstract than software: trucking. In late September of 2006, Liberate reiterated its intention to acquire USA Truck:

“Liberate has made a serious written offer to acquire all of the outstanding shares of the stock of USA Truck at a price of $21 per share, all cash, subject to the terms and conditions set forth in the letter that we provided to USA Truck.”

Like the rest of the world, USA Truck was mystified as to why it would be subject to an acquisitive approach from a former information-technology company.

USA Truck, Inc. is responding to a press release issued after the close of the market yesterday by Liberate Technologies stating that it had offered $21 per share to acquire USA Truck. Based on publicly available information, Liberate Technologies was formerly a public company that provided software to the cable television industry, which sold all its assets in 2005.

USA Truck officially rejected Liberate’s takeover bid.

Then there was the fire at Liberate’s former office in downtown Palo Alto. From Palo Alto online:

According to a placard beside the door, Liberate Technologies and the San Jose Mercury News occupy the second floor of the building, where the fire broke out. However, the Mercury News no longer has a bureau in Palo Alto, and Liberate Technologies, once based in San Mateo, sold its assets in 2005.

The cause of the fire was arson, and an arrest was made. The suspect, who had a history of mental illness, was convicted.

As for Liberate, Philip Vachon, formerly a vice president of sales for the company, took over as its CEO and chairman. He relinquished those positions in the summer of 2007, at which time he was a board member at Interstate Bakeries Corporation (IBC), purveyor of Wonder Bread and Hostess snacks. Despite his resignation from the company, Vachon still held an equity interest in Liberate. Perhaps he still does.

According to Google Finance, Liberate still trades over-the-counter on the symbol “LBTE.” That’s inexplicable, but so is nearly everything else about this company.

Microsoft Exec says Vista “Less Good”

Gradually and grudgingly, Microsoft is coming to terms with the tattered legacy of Windows Vista.

Microsoft isn’t good at admitting mistakes. It’s a little like George W. Bush in that regard. It’s not as if it hasn’t made any, mind you, it’s just that admitting them is difficult to do in a corporate culture that systematically forbids any display of perceived weakness.

Slowly, though, Microsoft representatives have signaled that Vista was less than perfect. Microsoft now is taking that disparagement a step further, treating Vista like a crazy aunt consigned to a mansion attic. Eventually, Microsoft will not speak of her at all.

For now, though Microsoft is remembering and acknowledging Vista, though not fondly.

Quoted in a Computerworld article at an investor conference, Charles Songhurst, Microsoft’s general manager of corporate strategy, said the following:

“What people underestimate is the importance of good or bad products. And sometimes your products are good, sometimes the products are bad. And I think Vista was a less good product for Microsoft.”

“Vista, a less-good product”? You know, I don’t remember that slogan in Microsoft’s advertising and promotional campaigns.

Moreover, who are these people to whom Songhurst refers, the ones who “underestimate the importance of good or bad products”? I don’t think he’s alluding to any of you, dear readers. Maybe he’s talking about his Microsoft colleagues.

Another interesting comment Songhurst makes relates to how Windows compares to Apple’s Mac OS X. Here, I’ll let him tell you:

“Apple has two very big structure advantages over us,” Songhurst acknowledged. “The first is its vertical integration … there’s always the quality of experience you can do if you go vertical that you can never do as a horizontal player.”

The downside to that strategy was that it limited Apple’s ability to make moves on the enterprise OS business, where Microsoft dominates the desktop even more than in the home. “It’s particularly constraining in the enterprise when you don’t provide the level of custom-ability, and extensibility,” Songhurst said. “It’s very difficult to see how Apple becomes compelling for the CIO over the next decade, and if they don’t become compelling to the CIO, they’re not going to make the inroads into the enterprise.”

Is he saying that Apple’s operating system, because of its inherent vertical integration and superior “quality of experience” (his words, not mine), is preferable for consumers, but not for enterprises? That’s one way of interpreting his remarks.

If that’s what he’s saying, I concur. For a long time now, I’ve said that Microsoft has an affinity for the enterprise that it simply doesn’t possess for consumers — and that affinity extends beyond operating systems.

At its core, Microsoft doesn’t understand consumers. There’s no shame in that.

It does, however, have strong appreciation and understanding of what businesses of all sizes want and need from their information-technology investments and suppliers. That’s a market Microsoft hasn’t fully tapped yet, especially in the world’s fastest-growing developing markets.

Nortel’s Enterprise Customers Advised to be Wary of Avaya

Some of you will recall my recent post regarding the challenges Avaya will confront as it attempts to integrate its acquisition of Nortel’s enterprise business. The challenges are real and substantive.

As I said previously, acquisitions rarely play out as they do on a spreadsheet. It would be folly for any acquiring company to expect that it simply will be able to augment its own market share with that of its new possession. It rarely plays out so seamlessly or uneventfully.

That’s because people are involved. The outcome of an acquisition doesn’t only depend on how well products and technologies are integrated into their new home. They key to success is how the people are handled — not just the new employees, but also the new channel partners, the technology partners, and, most of all, the new customers.

In a Network World piece, Jim Duffy consults a few market analysts who advise Nortel customers to keep a watchful eye on how Avaya handles the post-acquisition integration.

Said Bob Hafner of Gartner:

“There may be some surprises there. These are going to be two large companies coming together. It’s not the easiest thing to do. These things never go without issues, problems or concerns.”

Indeed.

Henry Dewing of Forrester makes a related point:

“The biggest issue for users is, ‘Show me the [product] road map,.’ They want to see hardcore product plans [and] how they are going to actually consolidate product lines.”

Avaya got Nortel in the bankruptcy auction. Now the hard part begins. This is when we’ll find out whether Nortel’s enterprise business will become a fully realized asset or a partial liability for Avaya.