Daily Archives: September 18, 2009

Joltid Fires New Salvo in Lawsuit Against Volpi

In a post last night, I considered — among other things — whether eBay could feasibly develop its own code to replace peer-to-peer (P2P) software from Joltid.

Doing so would achieve two objectives for eBay: it would keep Skype online, and it would enable it and Skype’s new investors to move forward with a $1.9-billion deal.

I also mentioned the increasingly biter relationship between Joltid’s principals, Niklas Zennstrom and Janus Friis, and Michael Volpi, who served as CEO and chairman of their video-sharing company Joost. He also served on Skype’s board during tenure at Cisco, where he was best known for his M&A dealmaking prowess.

He is now a partner at venture-capital firm Index Ventures, which is one of parties that hopes to acquire a majority percentage of Skype from its current owner, eBay. There lies the rub, as far as Zennstrom and Friis are concerned.

Presumably after completing their investigation into Volpi’s actions during his tenure as CEO and as chairman Joost, Zennstrom and Friis have come out swinging, filing yet another lawsuit that complicates eBay’s Skype deal.

This new instance of litigation was filed in the Court of Chancery of the State of Delaware against Volpi and Index Ventures. A press release from Joost summarizes the lawsuit concisely:

The lawsuit alleges breach of fiduciary duty against Volpi, aiding and abetting breach of fiduciary duty against Index, interference with prospective business advantage, misappropriation of trade secrets, breach of contract against Index, breach of confidence, and civil conspiracy. The suit seeks an injunction requiring the defendants to return to the plaintiffs all documents and files containing confidential information that the lawsuit alleges was misappropriated from Joost, and enjoining the defendants from making any use of the alleged misappropriated trade secrets, among other things.

We can only wonder at what underlies the legal salvos and litigious maneuverings. We don’t know what alleged breaches of fiduciary duty Joltid and Joost are ascribing to Volpi. We don’t know what “documents and files containing confidential information” or “missappropriated trade secrets” Volpi and Index are alleged to have purloined from Joost.

Could it all have something to do with the Joltid peer-to-peer software that is essential to Skype and is at the core of the preexisting licensing dispute between Joltid and eBay? If that were the case, it might explain why eBay seems reasonably confident about developing software that could be replace the Skype code it licenses from Joltid.

Whatever the facts that underlie the fracas, the conflict is intensifying.

Siemens Bid for Nortel Enterprise Offered Greater Benefit to Canada

As much as I thought the Canadian government should refrain from reviewing or attempting to overturn Ericsson’s acquisition of Nortel’s wireless business unit, I am just as adamant that it should have done more to prevent Nortel’s enterprise assets from falling into Avaya’s hands.

My objection isn’t so much to Avaya, which is taking Nortel’s enterprise business off the market to prevent a stronger competitor from emerging on its North American turf, as well as to milk the Nortel installed base for all it’s worth. Avaya is merely defending and furthering its business interests, which is what successful companies do.

No, the reason the Canadian government should have taken some action was because the competing alternative, from Siemens Enterprise Communications, offered a number of tangible benefits for the country that the Ayaya bid lacked. Just as Avaya looked out for its interests, the Canadian government should have being doing likewise. A Globe and Mail story makes the case persuasively. Here is an excerpt:

A year-long drive by a German company to create a Canadian-headquartered, $5-billion-a-year telecom equipment maker from the remnants of Nortel Networks Corp. ended in failure because of a lack of support from Ottawa, according to people close to the situation.

Plans to create a Toronto-based global tech giant by merging a Nortel manufacturing arm with that of Germany’s Siemens Enterprise Communications fell short despite the full backing of the Ontario government, according to numerous sources in the finance and telecom sectors. Instead of a domestic champion, the iconic Nortel unit is heading into foreign hands, as New Jersey-based Avaya Inc. won the unit with a $900-million (U.S.) bid.

Avaya won the Nortel unit by offering $15-million more than Siemens Enterprise, sources say, although the Avaya bid was all cash, while Siemens offered Nortel’s creditors a combination of $700-million in cash and an IOU on the remainder.

As to why Siemens didn’t outbid Avaya at auction, a source who worked on the Siemens Enterprise offer said the following:

“Avaya was willing to pay a premium to block a major rival out of its home market. We had a price we were willing to pay, and weren’t willing to go above that price.”

“But every dollar of support from EDC (Export Development Corp., an agency of the Canadian government), after the merger, would have been an extra dollar that could have gone into the bid.”

Given what was at stake — a Canadian-headquarterd telecommunications company, a significant commitment to ongoing research and development in Canada, and probably greater retention of Nortel staff than Avaya offered — one has to wonder why Canada’s federal government wasn’t more active in trying to influence the outcome.

The Globe and Mail reports that a source who worked with Nortel and Siemens said the following:

“In any other industrial company in the world, governments get the nuances of these arrangements. If this was France, they would have fallen over themselves to support this concept of a global champion in tech.”

It’s nearly impossible to argue otherwise. In this context, the passivity of the Canadian government is puzzling.

While there’s still a chance the Avaya purchase will be challenged by the Canadian government, or by regulators in Canada and the USA, the deal is likely to be consummated.

Looming RIM-Ericsson Showdown for Nortel’s LTE Patents

I never fully understood why Canada’s federal government would intercede on RIM’ s behalf to review or thwart Ericsson’s successful bankruptcy auction bid for Nortel’s wireless business unit. It didn’t make sense for the Canadian government to intrude, and, for a nice change, good sense won the day.

RIM’s appeals to Canadian patriotism were thin covers for self-serving motives. For RIM, the objective always was to get its hands of Nortel’s LTE patents and the licensing rights that accompany them. It wasn’t happy that Ericsson’s winning bid for Nortel’s wireless assets came with non-exclusive licensing rights to the LTE intellectual property.

With acquisitive designs on the patents, RIM wanted to control the terms and conditions of licensing agreements. In RIM’s view, what is the point of having a cow if the guy from Sweden can milk it whenever he wants?

RIM still wants the LTE patents, and so does Ericsson. Nortel owns about 100 LTE patents, royalties from which could generate as much as $2.9 billion over the lifespan of the technology, according an estimate provided by JPMorgan Chase & Co. estimated in late June.

China’s rising telecommunications-equipment star, Huawei, claims to have 147 LTE patents and counting. Even so, the Nortel patent portfolio is attractive, perhaps conferring more in quality than in quantity.

Nortel creditors, who’ve already done well at auction, are licking the lips with anticipation as an LTE-patent showdown looms between RIM and Ericsson — with others likely to join the fray.

Recovery or Not, Macroeconomic Fundamentals Remain Tough

Tom Foremski points to encouraging “green shoots” in Silicon Valley that Om Malik also has discussed.

We’ve all had enough of this downturn, and I understand the need for hope. Without it, we’d be dispirited or a lot worse. That said, any recovery, when it does arrive, will not be V shaped, or W shaped, or shaped like any other letter of the alphabet with a steeply ascending angle.

The macroeconomic fundamentals cited in the infamous Sequoia “RIP” PowerPoint presentation haven’t gone away. American consumers, who drive nearly 70 percent of the country’s economic activity (though some dispute that percentage), remain tapped out. More of them are without jobs than was the case before this punishing recession on steroids took hold. Given that we have slowly and somewhat imperceptibly entered a “jobless recovery,” one has to wonder at just how robust any such recovery can be.

Moreover, credit remains tight, new financial regulation will materialize, and some bankers actually are going back to being prudent bankers rather than being engineers of eclectic and exotic forms of securitized debt.

For our own sake, to avoid taking a bipolar rollercoaster ride from depression to elation and back again, we might want to temper our expectations. What we are experiencing is more than a standard-issue recession. A permanent reconfiguration of the global economy is occurring, that outlines of which can be perceived, even if much of it has yet to unfold.

Like old-fashioned bankers, we’d be wise to tread a prudent course.