Many people in the online video space are trying to make sense of the lawsuit Joost filed against former chairman and CEO Mike Volpi earlier today. The lawsuit has something to do with the supposed revelation of trade secrets in connection to the sale of Skype to a group led by Volpi’s new employer Index Ventures (which is also named in the suit, as it invested in Joost). But what does a failed video startup have in common with a VoIP operator? The answer comes down to one name: Joltid.

Joltid is a P2P technology provider incorporated in British Virgin Islands. It is owned by Joost and Skype founders Janus Friis and Niklas Zennström, and its tumultuous history makes the current fight with Volpi, Skype and eBay look like nothing special. Licensing conflicts that lead to the potential shutdown of a market leader? Been there, done that.

The roots of this conflict were planted all the way back in 2001, when file sharing was all the rage and Napster was being sued by the music industry. That was when Friis and Zennström came up with the idea of Kazaa, a file-sharing network based on a distributed database that would operate without central servers. The duo decided early on to apply this distributed architecture to the structure of their business as well.

Kazaa’s code was developed under contract by a startup in Estonia, with all of the work being coordinated from the Netherlands. Kazaa became Zennström and Friis’ flagship peer-to-peer product, but the idea was always to license the underlying P2P technology through a separate corporate entity called FastTrack BV. FastTrack’s code became part of a number of file-sharing clients such as Grokster, Morpheus and iMesh.

Morpheus proved to be especially successful and eventually managed to get more users than Kazaa itself. Then, out of the blue, the Morpheus client stopped working in early 2002. It quickly became clear that FastTrack had shut down the client by denying it access to its P2P network. Morpheus alleged at the time that this was a ploy to steal its user base and once again make Kazaa the most popular file-sharing client. Friis and Zennström had a different take and argued that Morpheus had failed to pay its licensing dues.

Morpheus quickly switched to an open, licensing-free technology to keep its service running, but had trouble providing a stable version of its client for some time and, in turn, lost countless users to Kazaa. The company filed a number of lawsuits against Friis, Zennström and related companies, but failed to convince the courts and eventually shut down due to overwhelming legal fees.

The Kazaa founders, on the other hand, were forced to sell their P2P client in light of mounting legal pressure, but held onto their P2P technology, which they continued to license through Joltid. Kazaa’s P2P core not only continued to power file-sharing networks, but also became the basis of Skype and eventually Joost, and Joltid in turn became a little-known but influential P2P powerhouse.

Fast-forward a few years: Kazaa and all of the file-sharing clients that used its technology have shut down. Joost abandoned its P2P roots under the leadership of Volpi. Skype is getting sold. eBay turned down an offer by Friis and Zennström, and the duo, seeing its influence wane, once again mounted a fight over licensing issues. Funny how history repeats itself, isn’t it?

Of course, the struggle and eventual demise of Morpheus isn’t exactly a good omen for Skype. But how does the lawsuit against Volpi fit into the picture? Joost and Joltid allege that Volpi gained insights into the inner workings of Joltid’s P2P technology through the process of bringing the video service to the web, and that this knowledge would help to develop a Skype version that doesn’t rely on P2P.

That’s a pretty dubious claim. Joost replaced P2P video delivery with Flash-based streaming. Skype, on the other hand, would have to switch to SIP and deal with issues like NAT traversal that just don’t matter if you operate a centralized streaming service. It’s like two very different vehicles that once shared the same road. Looking under the hood of one of them won’t help you to drive the other one.

However, if the Morpheus spat has taught us anything, it’s that this won’t end before at least one of the cars has been scrapped.

Janus Friis and Niklas Zennstrom’s Joost and Joltid today announced that they have filed a lawsuit against Michaelangelo Volpi, Joost’s former president, CEO and chairman, and his current private equity firm (and Joost investor), Index Ventures. The suit claims that Volpi and Index breached fiduciary duty, interfered with prospective business advantage, misappropriated trade secrets, breached contracts, breached confidence and committed civil conspiracy.

The gist of the lawsuit is that Volpi learned how to modify Joltid’s proprietary software to run on the web without the aid of peer-to-peer software when he was transitioning Joost from a peer-to-peer service to a web-based Hulu clone. With this knowledge, he was able to pitch a version of Skype that buyers could take over from eBay while side-stepping ongoing litigation.

eBay (and logically any buyer of Skype like the group Volpi and Index are currently leading) is embroiled in litigation over using Joltid’s technology, which runs the peer-to-peer software in Skype and the old version of Joost. But eBay and Skype only have an executable version of Joltid’s code to run Skype as an application, while Joost got access to the source code in order to modify it. (Friis and Zennstrom sold Skype to eBay in 2005, and are currently suing eBay as well.) If Volpi could reverse-engineer Skype in the same way today, it would potentially be able to operate without relying on Joltid. The lawsuit alleges the value of this confidential information is in the “billions of dollars.”

The lawsuit claims that if the above weren’t true, there’s no way Volpi and Index could have bought Skype.

“Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the Confidential Information.”

“Without the GI Software, Skype simply cannot function,” says the suit. The suit quotes Volpi in the Sunday Times, “[L]itigation is one of Skype’s liabilities…We are confident we can find a way [a]round it.”

The lawsuit alleges that Volpi has not returned his Joost computer, that he tried to make a copy of the confidential information, and that he tried to hire away Joost engineers with knowledge of the code. He apparently started work on the bid to buy Skype with Index in May, before stepping down in July (and being forced out last week). The lawsuit also indicates that Friis and Zennstrom may have been trying to do this themselves — Volpi had been privy to proposed plans to acquire Skype from eBay and combine Joost with Skype.

It’s possible this could just be a personal vendetta against Volpi. Here’s the airing of grievances:

“In a very short time, Volpi burned through a substantial amount of the working capital available to Joost at the time he became CEO. Moreover, he had removed from Joost a significant portion of Joost’s innovating and market-driving technology, leaving Joost to rely on third-party technology products. Volpi’s overall business strategy failed. Moreover, it was a failure that was extremely expensive, with Joost expending tens of millions of dollars of investors’ capital.”

But to Volpi’s credit, the original software version of Joost was extremely buggy. Though he may not have gained any market share with it nor been able to take advantage of the special P2P code, at least the modified Flash version of Joost worked! Basically Friis and Zennstrom are saying, you’re damned if you use our code, and you’re damned if you try to figure out a way not to.

The lawsuit is below (thanks to TechCrunch for posting an embeddable version):

Joost –

Joost Removed Volpi as Chairman; brouhaha gets more interesting as Joost says it “is conducting an investigation into Mr. Volpi’s actions during his tenure as CEO and as chairman.” WSJ Digits blog)

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Studios and Networks Working to Bring Web Video to TV and DVD; Dr. Horrible, Angel of Death and Seth MacFarlane’s Cavalcade of Comedy among those properties repackaged for offline consumption. (Broadcasting & Cable)

Ratings Consortium Gets a Name; Coalition for Innovative Media Measurement (CIMM) is the supergroup of media companies and advertisers trying to take on Nielsen. Robert Seidman calls the initiative “group therapy.” (TV by the Numbers) The coalition has only raised $1.4 million in total seed funding from the 14 founders of the group. (Broadcasting & Cable)

AT&T Officially Launches Hulu-Like Venture; the telco’s premium content venture gets a lot of its content from Hulu. (The Hollywood Reporter) Liz broke the news of AT&T’s entertainment portal last week.

FCC Launches Video Blog; Chairman Julius Genachowski kicks off the commission’s vlogging effort with a video about the power of broadband. (Broadcasting & Cable)

Virgin Media Taps Cisco for IP Video; cable co. updating its legacy platform to IP-based system and is using Cisco as the technology partner. (Multichannel News)

Volpi Still on Ooyala’s Board; the now-former Chairman of Joost no longer has the conflict of serving on both white label video providers’ boards. (Contentinople)

Mike Volpi is no longer Joost’s Chairman, Silicon Alley Insider has confirmed. In June, Volpi resigned his position as CEO of the failed web TV startup and became a venture partner at Index Ventures, an investor in Joost.

Volpi’s role at Index gets a little more interesting as his firm is one of the investors acquiring Skype from eBay and both Joost and Skype were founded by Janus Friis and Niklas Zennstrom (who are in a legal tussle with eBay). For background on the Skype situation, you can learn more here and here.

We have followed Joost’s tortured history from rising star to the hollowed husk of its former self. This summer, realizing the premium content game was lost to rivals like Hulu, Joost switched strategies to become a white-label video provider (because what the online video world needs is another one of those). And just last week, the company’s CTO, Jason Gaedtke, left the startup to join Time Warner Cable.

Former Joost CEO Mike Volpi already has a new gig lined up. He’ll be a venture partner at Index Ventures, which was part of the group that pumped $45 million into the little web TV startup that could (but didn’t).

Joost announced last week that it was changing focus from offering premium content in order to become (yet another) white-label video provider. As part of that strategic shift, Volpi stepped down as CEO but remains chairman of the company. Volpi has a long history with Index as he invested $10 million in the firm’s first fund while he was an exec at Cisco. According to the press announcement, Volpi will be “based in the London office as part of the venture team where he will lead early stage investments in the Internet, telecom/networking and media sectors and contribute to the firm’s later stage growth fund.”

Kara Swisher at All Things D has an interview with Volpi about the latest move, where he offers up a few more details about Joost. On the company’s failure to be a premium content player, he said, “At the end of the day, the consumer offering we had was not working, a lot because we did not have enough access to content we needed to build traffic.” Volpi justified Joost’s move into the highly competitive world of white-label video by saying, “It is better to be competing in a sector that has profitable rivals than one that does not.” He said Joost had discussions with possible acquirers, but those didn’t pan out because of price issues. “Not everyone wanted to pay a lot to own Joost, but a lot of people wanted to rent it,” he said.

Hopefully, Volpi will be able to take the failure of Joost in stride and pass on his experience of what not to do as a startup to the companies Index invests in.

Joost announced today that it is shifting business strategies and it “will focus on providing white label online video platforms for media companies, including cable and satellite providers, broadcasters and video aggregators.” As part of this transition, Mike Volpi will step down as CEO and Matt Zelesko, who is currently the senior VP of engineering, will take over while still leading the engineering team. Volpi will remain chairman of the board.

What makes this move seem all the more doomed is that Joost is already enlisting another white-label video provider, Ooyala, to manage its ingesting, transcoding and metadata management. How exactly will Joost pitch itself as a competitor to Ooyala (where Volpi is also on the board) when it uses Ooyala itself?

Joost said it will maintain a core team in New York and London to work on the new white-label biz, as well as operating Joost.com. The company will “wind down” operations in its Leiden development center. According to a statement attributed to Volpi, Joost “will say goodbye to many of our colleagues and friends,” which seems like it could not mean anything other than layoffs, but Joost wouldn’t elaborate further or provide specific numbers.

In April, it was rumored that Joost was looking to sell itself and had even talked with Time Warner Cable.

We used to joke here at NTV that becoming a white-label video provider was what a business did when all other strategies failed. And it looks like Joost is no exception. After starting off as a P2P-based app, the company found that requiring a download hampered its ability to gain traction. It then moved to a plug-in and eventually moved completely to a Flash based method for watching web TV.

But as Joost struggled to find its way, the door was open for rivals like Hulu to swoop in and establish themselves as premium content portals. A quick look at Compete.com shows how Hulu has soared while Joost pretty much flatlined:

But a bigger problem is that unlike Hulu, where its owners/content partners like NBC and FOX seem to take an active role in the success of the site, Joost’s media company investors Viacom and CBS treated the service like a red-headed stepchild. While Hulu has raked in brand-name content, Joost has tried to make do with its limited catalog. Earlier this month, the company signed 12 content partners — but none of them were big name TV or movie companies.

Joost was once heralded as the future of television. Times have changed.

Joost has announced that it is going to allow third-party developers to add Flash widgets to its video player soon. The Joost Labs blog this week previewed a widget that adds keyword-based Twitter search results to a video. Joost wants to eventually release a widget API that will expose some of the underlying video’s metadata and make it possible to integrate these widgets within the Joost Flash player.

This isn’t the first time Joost is toying with widgets. The company’s P2P-based video application also featured a widget API, but few wanted to develop for a player that had no user base. However, Joost has clearly been thinking about how to make widgets work in the past few years, and some of these ideas could lead to interesting results.

The Twitter widget demonstrated on the Joost blog seems like a nice gimmick, but not really groundbreaking. So why does Joost Chief Creative Officer Henrik Werdelin herald this as the birth of “open-source TV?” Werdelin writes on his blog that the upcoming API will allow users to “create any cool interactive active [sic] TV application on top of any of the shows on Joost.”

Part of that excitement is clearly rooted in the fact that the folks at Joost have spent a lot of time thinking about how to use metadata as part of the Joost viewing experience. Company developers already hinted at the possibility of “timestamped tagging, commenting, annotation” all the way back in the spring of 2007.

Fast-forward two years. The app is gone; Joost is all web-based and Flash-only. However, Joost’s new widget API will give developers access to things like the title and description of the video as well as the current time in the video. That means a widget will be able to know what scene a user is watching, and developers could add widgets that make it possible to add content-specific comments and share them with other viewers.

Granted, some of these things have already been done. Viddler, for example, allows users to add time-specific tags to its videos, and sites like Tubepopper make it possible to add text to third-party videos. Joost’s API, however, will allow a much more direct interaction with the actual video, to the point where widgets will be able to stop and restart a clip. One could easily think of a widget that makes it possible to add an episode guide to a TV show like Lost, pausing at key scenes and explaining references to past episodes with content added by the community.

Of course, Joost doesn’t have Lost, or barely any other popular TV show for that matter. Judging from the site’s activity stream, the most popular clips on Joost seem to be music videos and anime episodes. We’ll have to wait and see whether that inspires developers to come up with any exciting, new widgets this time around.

Joost Labs launched a version of its web TV service for the PlayStation 3 today, making it accessible on your television set via the game console. Well, making some of Joost’s content accessible on your PS3 — just not anything from Viacom, Warner Bros. or CBS.

To launch Joost, PS3 owners select the Network icon on the PlayStation, open the Internet browser, press start and enter http://labs.joost.com/tv/ in the address field. The navigation has been optimized for the PS3 game controller.

The Joost news comes just a day after research from In-Stat predicted that game consoles would remain the dominant delivery mechanism for web video on television sets through 2013. The migration of newteevee to oldteevee is one we’ve been keeping tabs on here, and it looks like Joost has run into the same hurdle Boxee and Hulu.

Studios and networks are all for putting their content online, but they don’t want it to be an end-run around traditional TV operators, giving people a reason to cut their cable cords. This attitude resulted in the official removal of Hulu from Boxee, and when Hulu recently released its desktop app, it expressly forbid running it on anything other than a PC.

We don’t have a PS3, so if any NewTeeVee readers out there do, fire up Joost and tell us how well it works.

Joost Gets 12 New Content Partners; web TV service to get content from Marvel Enterprises, Speed Racer Entertainment, and TOEI Animation, among others. (release) In other content partner news — Metacafe Adds TV Hub; section will be feature clips from television programming from CBS, TBS, TNT and the CW. (The Wall Street Journal)

Firefox 3.5 Makes Video More Like Web Pages; the browser’s user of open-source video standards open up new interactive possibilities. (TechCrunch)

Erin Gray to Be Casting Director for Hayden Black’s Cabonauts; former Buck Rogers star will bring the roster of celebrities she reps as part of her Heroes for Hire booking agency. (release)

Boomers Spending More Time Surfing Web than Watching TV; new research from Changewave finds the older set are spending 12.9 non-business hours each week surfing the web and 11.8 hours watching TV. (The Hollywood Reporter)

Is a TV “Family Hour” Dead? TV execs gather to discuss how DVRs and new technology platforms have made the idea of families gathering at one time to watch television a thing of the past. (The Wrap)

Independent developer Paul Yanez, who seems to make a game of adding functionality to web video platforms whether they like it or not, has built an Adobe AIR app for Joost called the Joost Media Player.

This is delightfully ironic for a number of reasons.

• Back when Joost was a peer-to-peer app, Yanez built a proof-of-concept of a web version of the video portal.
• Later, Joost went all-web, dropping its error-prone software, and making it more competitive with the ease of web-based Hulu.
• Yanez had built a similar AIR app for Hulu (since it’s web-only) called MyMediaPlayer2, which Hulu blocked six times, the latest time in March.
• Where Hulu blocked Yanez, the Joost creative and engineering teams actually collaborated with him on the Joost Media Player. Yanez says Joost will also be promoting the player on its own site.

I gotta say, I just downloaded and started using the app, and it was far less painful than using the original Joost software ever was. But in a twist away from Joost’s recent social strategy, Joost Media Player doesn’t even include the user accounts and newsfeed-oriented social viewing system that Joost has emphasized on the web; rather, it solely gives users the option of tying into their Twitter feeds to report to friends what they’re watching. Yanez’s app also has remote-control viewing enabled, though I haven’t tried that yet.

How to Recognize Swine Flu Symptoms; new video from CDC is among the many posted in response to the outbreak. (YouTube Blog)

Sezmi Aims for a Fall 2009 Commercial Roll Out; launch pushed back six months as the set-top box company optimizes the user experience and ties in with the holiday season. (VideoNuze)

Nielsen: People Aren’t Using Our TV Ratings Equipment Properly; company says that the more people present in TV ratings households, the more likely they aren’t reporting accurately; national TV ratings could have been understated by 8 percent. (MediaPost)

Sony’s Crackle Launching Two New Web Series This Year; from Kevin James comes the stuntman comedy Dusty Peacock; the other series is The Bannen Way, about a con man. The site is also adding 100 guy-oriented movies from Sony like Spider-Man 2 and Stripes. (The Hollywood Reporter)

Slate Takes on Hulu; comedic bit pokes fun at the site’s ad options. (SlateV)

Joost is looking to sell itself and become an online video platform for cable or satellite operators, with Time Warner Cable supposedly interested, according to an anonymously sourced article at CNET. When asked about it, a Joost rep provided us with a “we don’t comment on rumors” email.

Joost CEO Mike Volpi wrote a post on the Joost blog yesterday outlining just how shiny everything is on the site. According to the post, site traffic is up nearly five-fold since relaunching the web-based Joost.com service and there were 15 million video views in March. Volpi closes the post with:

“[N]othing, not brain-eating aliens, not cats on skateboards, and not rumors and speculation, will keep us from continuing on our mission to bring video to you over the internet. In the afterglow of the hype of our early days, we’ve had our fair share of critics, but we’re encouraged every day by the amount of feedback emails, tweets, Facebook comments and more that we receive from our fans.”

Joost was heralded as an online video messiah when it launched in 2007, one that would lead web TV into a new era. But people didn’t like downloading an app to run the thing and upstarts like Hulu (and now YouTube) stole Joost’s thunder by nabbing brand-name, premium content and creating a killer user experience. Even CBS, which invested in Joost, re-launched its TV.com to become a rival premium content portal.

As far as potential suitors, we know Comcast doesn’t need to buy Joost; it’s going full steam ahead with its Fancast. Though it has an agreement to use Comcast-owned thePlatform for video publishing and management, Time Warner Cable could be interested. But the Joost brand is pretty tarnished at this point, and while Joost has some content from Viacom, CBS and Warner Bros., it recently lost Sony Pictures, and doesn’t have content from Fox or NBC. So Time Warner wouldn’t be acquiring the rights to a vast online content library.

Joost needs something big in order to survive, and an acquisition by a big cable company like Time Warner could be its best bet.

Coulda Been: Blockbuster Was Going to Get Into the Operator Biz; former exec explains how the movie rental chain was going to roll out video over DSL in partnership with Verizon. (All Things D) And while Blockbuster endures a far less glamorous fate, Redbox moves into Manhattan. Company installs two DVD rental kiosks in the largest U.S. market, one in the Walgreen’s at the Empire State Building, and one at One Times Square. (Variety)

Rotten Tomatoes Show Debuts Tonight; movie reviews and info show will run on Current. (Digits Blog)

Windows Media Center Adds Sports; launching today on Windows Vista, Microsoft has content from Fox Sports, CBSSports.com, and MSNBC, including recaps of March Madness. (CNET)

Joost Partners with Netlog; agreement with Europe’s leading social networking service will let Netlog’s audience watch Joost content. (TechCrunch)

Less Than 4 Percent of U.S. Homes Not Ready for DTV Switch; since mid-February, more than 500,000 homes have prepared for the June 12 transition. (Nielsen Wire)

Ustream and Skyfire Enter into Promo Agreement; live-streaming company to endorse the mobile browser; Skyfire will make Ustream a featured bookmark. (jkOnTheRun)

Watch Hulu on Your TV through Plex; those bummed over Hulu’s departure from Boxee may want to try this other XBMC-based project. (Zatz Not Funny!)

Joost to Use Ooyala on Backend; video publishing service will provide ingestion, transcoding and metadata management tools to web TV site. (release) Liz broke this story last week.

China Central Television Launching Online TV Station; CCTV.com being created to compete with other video portals and help the government maintain control of the media. (Variety)

Microsoft Technology Stitches Together Mobile Video; from its research labs comes an ability to turn various mobile videos into one large panoramic video. (TechCrunch)

CBS Opening Up TV.com Internationally; it’s a small step, but audiences outside the U.S. will be able to watch clips of Beverly Hills 90210, Melrose Place, Star Trek and 60 Minutes. (Contentinople)

GTalk Worm Traced Back to San Francisco Man; ViddyHo.com registration information lists Cam-Hoan Ton-That and HappyAppy, Inc. as registrants. (The Harvard Crimson)

NewTeeVee has learned that video platform startup Ooyala will soon power video portal Joost. Representatives for the two companies confirmed that Ooyala would be providing its technology for Joost, but declined to offer further details until they are formally announced. For now, it was made public today that Joost CEO Mike Volpi joined the Ooyala board of advisors.

Steven Abraham, who leads IBM’s global business services in media and entertainment, joined the Ooyala advisory board as well. And Ooyala said that relationship will also include providing video services to IBM, though we don’t yet know to what extent.

The tie-up with Ooyala is a good move for Joost, whose technology has had hiccups throughout its many generations and revamps, from P2P app to plug-in to Flash video site. But it begs the question of what exactly Joost’s strength is, given that its content collection is not especially distinctive.

Joost content providers include Warner Bros. and investors CBS and Viacom and it also has extensive music video and anime collections. One advantage over competitors such as Hulu is that quite a bit of Joost’s content is available outside of the United States.

Ooyala looks great on the PC, and has some interesting clickable advertising and analytics technology, but unlike some of the white-label video competition it doesn’t offer full-fledged mobile or TV extensions, which seems like an opportunity for Joost to rise above. Joost does already have its own iPhone app. Ooyala makes use of Adobe AIR and also Amazon’s web services, whose startup competition it won in 2007. Its existing customers include Bebo and TV Guide.

Joost has $45 million in funding from founders Janus Friis and Niklas Zennström, Sequoia Capital, Index Ventures, Viacom, CBS and Li Ka-shing. Ooyala, which was founded by a trio of former Google employees, has raised $10 million in funding from Sierra Ventures and angels.