Page 1 2006 U.S. Dist. LEXIS 97391, * 31 of 72 DOCUMENTS STREAMCAST NETWORKS, INC., Plaintiff, vs. SKYPE TECHNOLOGIES, S.A., et al., Defendants. CV 06-391FMC (Ex) UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA 2006 U.S. Dist. LEXIS 97391 September 14, 2006, Decided September 14, 2006, Filed, September 15, 2006, Docketed and Entered SUBSEQUENT HISTORY: Claim dismissed by, Mo- Encino, CA; Jeffrey F Gersh, LEAD ATTORNEY, tion granted by Streamcast Networks, Inc. v. Skype Gersh Law Firm, Encino, CA. Techs., S.A., 2006 U.S. Dist. LEXIS 97392 (C.D. Cal., Sept. 14, 2006) For LA Galiote BV, Indigo Investment BV, Defendants: [*2] Jeffrey P Alpert, LEAD ATTORNEY, Gershkaplan, COUNSEL: [*1] For StreamCast Networks Inc, Plain- Encino, CA; Jeffrey F Gersh, LEAD ATTORNEY, tiff: Charles S Baker, David L Burgert, Eric D Wade, Gersh Law Firm, Encino, CA. LEAD ATTORNEYS, Porter & Hedges, Houston, TX; Daniel J Woods, Gary S Sedlik, Matthew P Lewis, For Sharman Networks Ltd, Lef Interactive Pty Ltd, De- LEAD ATTORNEYS, White & Case, Los Angeles, CA. fendants: Mark A Albert, Roderick G Dorman, Hennigan Bennett & Dorman, Los Angeles, CA. For Skype Technologies S A, eBay Inc, Defendants: Benjamin F Chapman, Joseph S Leventhal, Michael G For Murray Markiles, Defendant: Marc Morris, Mark A Rhodes, Philip C Tencer, LEAD ATTORNEYS, Cooley Albert, Roderick G Dorman, LEAD ATTORNEYS, Godward Kronish, San Diego, CA. Henningan Bennett and Dorman, Los Angeles, CA. For Niklas Zennstrom, Kazaa BV, Mark Dyne, Defend- JUDGES: FLORENCE-MARIE COOPER, Judge. ants: Lance A Etcheverry, Peter Bradley Morrison, LEAD ATTORNEYS, Skadden Arps Slate Meagher and OPINION BY: FLORENCE-MARIE COOPER Flom, Los Angeles, CA; Thomas J Nolan, LEAD AT- TORNEY, Skadden Arps Slate Meagher and Flom LLP, OPINION Los Angeles, CA. ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS BRILLIANT DIGITAL EN- For Janus Friis, Defendant: Thomas J Nolan, LEAD TERTAINMENT INC. AND KEVIN BERMIESTER'S ATTORNEY, Skadden Arps Slate Meagher and Flom MOTION TO DISMISS THE FIRST THROUGH LLP, Los Angeles, CA. FOURTEENTH CLAIMS FOR RELIEF ALLEGED IN PLAINTIFF'S FIRST AMENDED COMPLAINT For Joltid Ltd, Defendant: James A Sedivy, LEAD AT- TORNEY, Jeffrey P Alpert, Gershkaplan, Encino, CA; This matter is before the Court on Defendants Bril- Jeffrey F Gersh, Gersh Law Firm, Encino, CA. liant Digital Entertainment Inc. and Kevin Bermiester's Motion to Dismiss the First through Fourteenth Claims For Joltid Ou, Brilliant Digital Entertainment Inc, Kevin for Relief Alleged in Plaintiff's First Amended Com- Bermeister, Altnet Inc, Defendants: James A Sedivy, plaint (docket no. 48), filed on August 2, 2006. The Jeffrey P Alpert, LEAD ATTORNEYS, Gershkaplan, Court has read and considered the moving, opposition and reply documents submitted in connection with the Page 2 2006 U.S. Dist. LEXIS 97391, * Motion, and deems the matter appropriate for decision 1 The License Agreement is not attached to the without oral argument. See Fed. R. Civ. P. 78; Local FAC. StreamCast represents that this is because it Rule 7-15. Accordingly, the hearing set for September contains a confidentiality clause which necessi- [*3] 18, 2006 is removed from the Court's calendar. For tates an entry of a protective order, an action that the reasons and in the manner set forth below, Defend- has not been accomplished to date. ants' Motion is GRANTED in part and DENIED in part. Pursuant to the License Agreement, Kazaa delivered to StreamCast, in Los Angeles, California, working cop- FACTUAL BACKGROUND ies of the FastTrack P2P software. Id. P 32. StreamCast Plaintiff, StreamCast Networks, Inc. ("Streamcast") promptly began distributing FastTrack P2P software over seeks relief for injuries arising out of Defendants' pur- the internet under the name Morpheus and its efforts ported orchestration of "an elaborate over-seas shell were met with almost immediate success, with millions game in an attempt to steal and wrongfully profit from of downloads in a very short period of time. Id. technology that rightfully belongs to StreamCast." The In June 2001, StreamCast officials met again with relevant facts, as alleged in the First Amended Complaint Zennestrom and Friis to try to negotiate the purchase, by ("FAC"), are as follows: StreamCast, of Kazaa and/or the right to the FastTrack StreamCast is in the business of, among other things, P2P technology. Id. P 33. StreamCast hired Murray developing, marketing, promoting and distributing a free Markiles ("Markiles") to serve as its counsel in these peer-to-peer ("P2P") search and file sharing software negotiations, to whom StreamCast divulged confidential application called Morpheus, which allows end users to information about its relationship with Kazaa and its search for, find, and download almost any type of digital business plans with the Fast Track technology. Once file through one or more P2P networks over the Internet. again, StreamCast's purchase efforts were unsuccessful. FAC P28. Id. When StreamCast first entered the P2P file-sharing In August 2001, StreamCast learned that Zennstrom, business in 2000, it utilized an open source software Friis, Kazaa [*6] and others may have secretly incor- program called OpenNap. Id. P29. StreamCast became porated a "disabling" feature or other technology into the increasingly unhappy with the performance of OpenNap FastTrack P2P software provided to StreamCast, which and, in the early part of 2001, began to shop around for a would allow these individuals/entities to block Morpheus replacement software package. During its search, it came users from utilizing the Morpheus FastTrack network. Id. across [*4] a software application called FastTrack, the P34. StreamCast sought and obtained written assurances rights to which were wholly owned by Kazaa, B.V. from Kazaa, Friis and Zennstrom, in the form of an ("Kazaa"), a Netherlands company. Id. PP 6, 29-30. amendment to the License Agreement, that no such FastTrack "was an innovative, decentralized P2P soft- "disabling" feature existed. Id. P 35. ware application that allowed its users to exchange dif- Some time thereafter, StreamCast was approached ferent types of digital files over the Internet" and, at the by Kevin Bermeister and Mark Dyne, acting on behalf of time (i.e., early 2001), "there was no other, comparable Brilliant Digital Entertainment, Inc. ("BDE"). Id. P 39. software application in existence...." Id. P29. Dyne and Bermeister represented that they wanted to Recognizing what it believed to be an ideal business "bundle" BDE's 3D digital media tool with StreamCast's opportunity, StreamCast approached Kazaa's owners, Morpheus application; Dyne also proposed to invest in Niklas Zennstrom and Janus Friis, regarding possible StreamCast, using funds from his company, EuroCapital purchase, by StreamCast, of the rights to the FastTrack Advisors. Id. StreamCast, represented by counsel P2P software application. Id. P30. Zennstrom and Friis Markiles, met with Dyne and Bermeister on several oc- refused to sell their rights, but agreed to grant Stream- casions, and disclosed to them "numerous, confidential Cast a license for the FastTrack P2P software, in ex- items about StreamCast, the Fast Track P2P software, change for, among other things, a royalty. Id. and its relationship with Zennstrom, Friis, and Kazaa, including that StreamCast held the right of first refusal in On March 22, 2002, StreamCast and Kazaa entered the underlying FastTrack technology." Id. into a License Agreement, whereby Kazaa licensed all of its rights in and to the FastTrack technology to Stream- As a result [*7] of StreamCast's disclosures, Cast. The License Agreement also contained a provision Bermeister and Dyne became aware that Kazaa, providing a right of first refusal in favor of StreamCast to Zennstrom and/or Friis actually owned the underlying purchase any technology or other assets of Kazaa if any FastTrack P2P technology and they [Bermeister and other party sought to acquire any [*5] of Kazaa's tech- Dyne] began formulating a scheme to purchase the same, nology or other assets. Id. P31. 1 through a third party. Id. Specifically, Markiles, Bermeister and Dyne, unbeknownst to StreamCast, ap- Page 3 2006 U.S. Dist. LEXIS 97391, * proached Kazaa, Zennstrom and Friis and together they Skype Technologies ("Skype"). These same individuals "concocted a plan to sell and otherwise transfer Kazaa's then orchestrated a transfer of Joltid's P2P software to FastTrack P2P technology in violation of StreamCast's Skype. Today, Skype uses P2P technology to offer in- right of first refusal" and with the goal of destroying ternet-based voice communications ("VOIP") services to StreamCast as a competitor. Id. In furtherance of this consumers worldwide. Id. PP 46-47. It has over fifty-four plan, Bermeister and Dyne enlisted the help of a former million registered users, with over three million users on business colleague, Nicole Hemming, to form Sharman the network at any one time. Id. P 47. Networks, Ltd., a corporation incorporated under the On September 5, 2005, eBay, Inc. ("eBay") pur- laws of Vanuatu. Id. P 40. chased Skype for a price in excess of $ 4.1 billion. Id. P Although unaware of the burgeoning scheme be- 48. During the purchase negotiations, eBay became con- tween Markiles, Bermeister, Dyne, Zennstrom and Friis, cerned about Zennstrom and Friis' "illicit and questiona- StreamCast nonetheless became concerned about the ble past dealings." Id. P 49. It therefore [*10] required integrity of the FastTrack P2P License Agreement due to Zennstrom and Friis to represent and warrant that they Zennstrom, Friis and Kazaa's failure to produce cer- had no dealings with Kazaa and Sharman Networks, tain"key documentation" relating to the operation and which Zennstrom and Friis did. Id. composition of the software, as specifically required by the Agreement. FAC P 41. StreamCast notified [*8] PROCEDURAL HISTORY Zennstrom, Friis and Kazaa that it would withhold its This action commenced on January 20, 2006, with monthly royalty payments commencing in December, the filing of Plaintiff StreamCast's Original Complaint 2001, until such time as the documentation was pro- for Damages for (1) violation of the Racketeer Influ- duced.