What is Copyright? for small business

Prior to crowdSPRING, I was a lawyer for 13 years - focusing on complex commercial and intellectual property litigation. This is the first in what will be a regular feature in our blog discussing important legal issues that impact every small business.

What is Copyright?

Copyright is a form of legal protection provided to those who create original works. Under the 1976 Copyright Act (United States), the copyright owner has the exclusive right to reproduce, adapt, distribute, publicly perform and publicly display the work. Any or all of these rights can be licensed, sold or donated to another party. One does not need to register a work with the U.S. Copyright Office for it to be automatically protected by copyright law (registration does have benefits - but we won’t be covering those in this article).

Copyright laws around the world can differ in significant ways. Most countries are signatories to various International treaties and agreements governing copyright protection (such as the Berne Copyright Convention). Under the Berne Copyright Convention, if your work is protected by copyright in your own country, then your work is protected by copyright in every other country that signed the Berne Copyright Convention.

What does Copyright protect?

Copyright protects works such as poetry, movies, writing, music, video games, videos, plays, paintings, sheet music, recorded music performances, novels, software code, sculptures, photographs, choreography, and architectural designs.

To be protected by copyright, a work must be “fixed in a tangible medium of expression.” This means that the work must exist in physical form for at least some period of time. A tangible medium includes paper (even a napkin will do!) and digital forms of storage. Additionally, the work must be original. It doesn’t matter if the work is similar to existing works, and copyright law is blind to whether the work is good or bad - so long as the work is original, it is protected by copyright. Finally, a work must be the result of at least some creative effort by the author.

Copyright doesn’t protect an idea, system or process (you would need to obtain patent protection for those). So, for example, if your small business is creating software programs, you would generally be unable to protect under copyright law the algorithms, methods, systems, ideas or functions of software (your code, however, is protected – nobody can sell or distribute your code without your permission).

 

How Long Does a Copyright Last?

For works created after January 1, 1978, copyright protection lasts for the life of the author plus an additional 70 years. For an anonymous work or a work made for hire (we’ll talk about that in a later post), the copyright lasts for 95 years from the year of its first publication or a term of 120 years from the year of its creation, whichever expires first. For works first published prior to 1978, the term will vary depending on a number of factors.

What Should Small Businesses Do To Avoid Violating Copyright Law?

Here are five practical things you should do to make sure you don’t violate copyright law:

1. Don’t copy material just because you don’t see a copyright symbol. Since 1978, U.S. copyright law has not required that the copyright owner post a copyright notice with their work. That means that any work reduced to a tangible form (paper or digital, for example), is automatically protected by copyright.

2. Respect Creative Commons licenses. Creative Commons is a powerful framework that works alongside copyright law, but don’t confuse Creative Commons with “free for the taking.” There are a number of different types of Creative Commons licenses and you should review the specific license before you use something protected by Creative Commons. For example, when searching for images on Flickr to include in my blog posts, I always search for images licensed under Creative Commons and available for commercial use.

3. Don’t use works created by someone else merely because you can’t find any copyright restrictions or the author’s identity. Merely because you don’t know who created a work doesn’t give you the right to use that work. This is commonly abused when people do a search - on Google, for example - for images and use an image they’ve found in an article, blog post, or design.

4. Define Copyright Ownership. When you hire independent contractors to create work for you, consider including “work-for-hire” provisions in your legal agreement with your independent contractor (more about this in a later post) or provisions that transfer the ownership of the work created by those contractors - or at the very least, a license to use - to you and/or your company.

5. Understand the Permitted and Prohibited Uses Under a Copyright License. When you buy or use stock photos or other materials protected by copyright in your marketing materials, advertising, or as part of your website, pay attention to what you are and are not permitted to do with that work. For example, stock photos from sites like iStockphoto and Shutterstock are protected by specific licenses which restrict the uses for those photos and prohibit, among other things, use of stock for logo design. Don’t assume that a license gives you unlimited rights - it most likely does not.

In a later post, we’ll talk about more advanced copyright issues, including what to do if someone violates your copyright. And If there are other small business legal issues you’re interested in reading about, please leave a comment and let me know.

Please remember that legal information is not the same as legal advice. This post may not address all relevant business or legal issues that are unique to your situation and you should always seek legal advice from a licensed attorney.

image credit: MikeBlogs

9 Things I Learned from Reed Hastings @ Netflix

At a private CEO event a few weeks back, I had the pleasure of seeing Reed give a powerpoint-less presentation.   His way of looking at business is quite inspirational, and there’s now doubt it’s a major reason why Netflix succeeded where many others have not.  I’ve been thinking about which of these ideas fit for BzzAgent…regardless, every company could add a little bit of his wisdom.  Here’s what I jotted down (note much of this is paraphrased):

1. When outlining a strategy, instead of just articulating what you’re going to do, always add what you’re NOT going to do.   To know what your strategy will force you to not do will make things much clearer.
2. If you can grow within your market by 10x, then stay in that market.  If you can’t grow by 10 times, then expand into other markets where you can.
3. Companies aren’t like families.  Families provide unconditional love and are highly dysfunctional.  Companies, rather, are high performance teams.  Sports teams make their players try out for their job every year.  If you need a great left tackle, you shouldn’t just keep someone because they were there last year.
4. A great company is not sushi at lunch; it’s working with incredible people.
5. Don’t optimize for people who follow process, optimize for people who think and are mavericks.  Flexibility is more important than efficiency.
6. Coordinate team on strategy but avoid buy0in on tactics.  Think: Highly aligned, loosely coupled.   Occasionally stuff goes wrong, but this allows for much better speed to execution.
7. Managers need to ween selves from crutch of an employee’s time in seat vs how they’re succeeding.
8. If a smart person does something dumb, figure out the problem in the context that you set, not the tactic that they failed at.
9. Value is what you hire and fire on.  Forget the bs flowery stuff.  Your values are based on what makes you decide to hire someone.

When I caught up with Reed after his speaking gig, we talked a little bit about some of his other ideas on compensation.  I’m not sure I buy into those yet, but he’s got me thinking…

Grappling with a wealth of guilt

Washington Post Staff Writer
Friday, November 20, 2009

Young heirs seek moral balance between inherited windfalls, social responsibilities

 

How to pick a co-founder

Learn more about: Co-Founders

When China Rules the World: The End of the Western World and the Birth of a New Global Order

 

With the prospect of China's economy surpassing the United States' in less than 20 years, the great debate today is over whether China will integrate into the existing world order or seek to transform it. Invoking the grand logic of the rise and fall of great powers, Jacques, a journalist, makes the case that China will dominate and reshape the global system. He argues that although China's first steps toward global preeminence are economic, eventually its political and cultural influence will be even greater -- and that, overall, "China's impact on the world will be at least as great as that of the United States over the last century, probably far greater." Jacques also claims that Beijing appears to offer the world an alternative route to modernity -- and therefore a different vision of world order. Having adopted the trappings of Western capitalism while embracing a more illiberal conception of social order, China is modernizing, not westernizing. Therefore, Jacques argues, its coming hegemony will reorient politics and society. But the book is better at describing differences between the East and the West -- their cities, customs, values -- than alternative logics of global order. It does not explore in any depth what it will mean for China to become a global hegemon. Hegemony involves building a system of institutions that other states seek to join, overseeing an extensive system of alliances, and providing public goods. The United States' liberal orientation has facilitated its leadership. It remains to be seen whether China can build a Pax Sinica without an open, rule-based world order.

8 Steps to running your business on (mostly) free apps

"I should thank my frd @dhaneshkk for this article."

If you spend, or plan to spend, substantial dollars on Web services or software support for your startup, you’ll want to read this post. I’m going to show you how, with my 8 Steps to Running Your Business Off Low-Cost Web-Apps, it is possible to run a substantial company on software services and infrastructure that are either entirely free, or available for a low monthly fee, on the Internet.

As an entrepreneur and bestselling author, I’ve lectured and written previously about how intense competition on the Web has lead to a proliferation of companies that offer mission-critical services for free or at very low-cost. I am not the only one who has recognized this phenomenon.

In late September, I took another step to try and amplify the benefits of this trend for entrepreneurs: I launched Search Free Apps , a search engine that includes over 700 hand-picked enterprise-quality applications that are free on the Web. This week I will also launch the Your Web Applications Audit by Search Free Apps, which you can use to save more money on the Web services you’re currently using, or to locate new services to support your startup’s low-cost expansion.

The benefits of this approach extend beyond lowering your operating costs. Avoiding a cost-prohibitive investment in custom technology will also afford your young company greater flexibility to adopt new, better Web technologies as superior technologies or services evolve. This will be even more important as your company grows. All of which adds-up to a more competitive firm.

At the end of this post, I share the list of free or low-cost apps that deliver mission critical infrastructure to my startup, Search Free Apps. I hope you try my service to find additional apps that suit your particular business. Even if you don’t, read my 8 Steps to Running Your Business Off Low-Cost Web-Apps, below. Follow them to gain even more value from my low-cost strategy.

1) Establish a bias towards software-as-a service.
Find free online applications (such as Weebly or ImageShack) that you rent on a monthly basis. Software should only be adopted in extreme situations. By adopting capabilities that reside on the Web, you eliminate the headaches associated with software maintenance. You also get the benefit of ongoing upgrades.

2) Identify the services you need; assume free or low-cost versions are available.
(See sample list below). Low-cost services should form the baseline for your ultimate choices. Then, any higher-cost service you identify needs to demonstrate the value of a premium price through some combination of factors including: better features, greater reliability, superior support, or greater ease of use. (In my experience, many premium-priced products do not).

3) Never commission custom software.
Custom code limits your flexibility by locking you into the offerings of a specific vendor for a lengthy period of time. You’ll pay for upgrades, and also lose the opportunity to try new low-cost Web services that come to market.

One way of thinking about this issue is to look at the costs of sophisticated services over time. It’s not an exaggeration to say that if a particular feature costs $50,000 to $250,000 today, a year from now it may well be available as a Web-based service that can be rented for less than $40 per month, and two years from now it may be one feature in a service package that rents for less than $25.00 per month.

4) Live by my 60% rule.
If a particular service meets 60% of your needs today it is what you should use. It’s good enough. As Web-based services are constantly enhancing their offerings, within a few months it will likely meet 80% of your needs, or even include valuable features that you had not imagined.

You must also accept that in a 60% world some potential customers will get away. But the appropriate question to ask is: How much revenue can I add to our business by filling in the gaps in a 60% solution? The answer is likely to be very small. Moreover, it’s my experience that businesses that invest in finding infrastructure services that are perfect, as opposed to good enough, rarely achieve profitability. They spend too much time looking for “perfect capabilities” outside their core offering, tend to over-spend on these capabilities, and thus, lack the flexibility of their competitors.

5) Focus on how a service works, not the brand-name provider who sells it.
In a large number of cases, sophisticated service platforms may be designed for one purpose, but can be implemented to provide a variety of purposes that are valuable to the needs of your enterprise. Think creatively about how a service may be extended and integrated into your infrastructure, and you will find many valuable uses for it.

6) Automate as much as possible.
There may be aspects of your business, particularly in your core offering, that require human intervention. However, you want to build a low-cost infrastructure that automates everything else. Once you need to put people power against any part of your infrastructure, you have lost the ability to easily scale the business.

7) Always have a backup ready.
The long-term reliability of any Web service should always be on your mind. I counsel companies to have a replacement for all services identified at the time they decide what services to use. Also include an estimate of the time it would take to replace a specific service, and an ongoing means of ensuring any valuable data or records accumulated by any of your services are transferred to you..

8) Learn html.
You or someone you trust must be educated in simple html. Sure, many Web businesses have in-house capabilities that eliminate this issue. However, I have seen too many start-ups founders from outside the Internet industry become totally at the mercy of outside vendors. For the lack of some easily obtained knowledge, they lose the ability to make the majority of the responsible judgments and tradeoffs advocated above.

The low-cost or free Web app can be a very powerful tool in the arsenal of any company. In today’s intensely competitive environment every startup founder should carefully investigate whether his or her company is fully integrating these cost-saving and flexibility-enhancing services.

Sites where I get free or low-cost services for Search Free Apps:

1. Mozy: continuous online backup of PC’s. It’s free for the first 2 Gb.
2. Weebly: free site hosting and easy Web site creation service.
3. Wufoo: sophisticated forms; free for the first three forms.
4. Weber: auto-response service, with unlimited follow-ups and mailings for $19.95/month.
5. Feedburner: free RSS management.
6. Typepad Pro: unlimited blogs for 14.95/month. (Other are free, like WordPress.org.)
7. Web-Stat: Web tracking free, or $5.00/month.
8. Image Shack: free web-based management of images.

Bruce Judson is a Senior Faculty Fellow at the Yale School of Management, the author of Go It Alone!: The Secret to Building a Successful Business on Your Own (one of the first books to be published on the Web, Bruce’s book is yet another free resource for you to tap!), and the founder of Search Free Apps.
Copyright 2007 Bruce Judson. All rights reserved.

A simpler approach to computers Entrepreneur takes father’s ideas, turns them into a business

Software entrepreneur Aza Raskin measures productivity improvements by theseconds.
Using Enso, his company’s new software, it takes just 3 seconds tocalculate, say, sales tax of 8.25 percent. That’s about one-tenth the time itwould take if a user was to call up the calculator that comes with Windowsusing the Start command, he said.
You might wonder what difference 27 seconds makes in the scheme of things,but Raskin is striving for the absence of interruptions with his new software,which is always at the ready on the desktop.
To fetch it a user simply holds down the Caps Lock key. For example, tolaunch Notepad, hold down Caps Lock, type open, then notepad. To get adefinition for a word, hold down Caps Lock, then type define and the word.Enso Words, which also includes spell-checker and a thesaurus, is designed towork on all applications, from Photoshop to various e-mail and instantmessaging systems, so users don’t have to stop and switch applications tocheck a word.
“One of the impediments to modern computers is they make you jump around somuch. They break your train of thought,” Raskin said. “If you lose what you’rethinking about, that’s going to cost you a lot more time.”
Raskin, the company’s 23-year-old president, is one of four University ofChicago alumni who are principals at Humanized, a Chicago-based softwarecompany promising to simplify the use of Windows-based PCs.
“By making computers easier to use and more humane, the productivity edgecan really help you out,” he said.
It’s not an original idea. In fact, Humanized stems from the work ofRaskin’s late father, Jef Raskin, who created the vision for the Macintoshcomputer and authored the book, “The Humane Interface.” Aza Raskin startedHumanized after his father died of pancreatic cancer in 2005 and has dedicatedEnso to his memory.
While Humanized’s software has received early accolades for its ease ofuse, ultimately the company will need more than cutting-edge technology to besuccessful, experts said.
“Most great technology companies succeed because of marketing, not becausetheir technology is great,” said Scott Meadow, professor of entrepreneurshipat the University of Chicago Graduate School of Business and a partner atEdgewater Funds, a Chicago private-equity firm. “The specialized knowledge inbeing able to market the technology is what separates the winners from thelosers normally.”

Price dropped
Just a week after it launched its first two software products, EnsoLauncher and Enso Words, on Jan. 24, Humanized slashed the price of the twoproducts, which are downloadable at www.humanized.com. Together, they sell for$35, down from $65 initially, and the company is refunding the difference forthose who purchased at the higher price, Raskin said.
“People really like Enso but said it was too expensive,” Raskin explained.”We decided we wanted to reach more people. We think we’re going to get moresales at a lower price.”
Still, the company might have hurt its image in the process.
“They couldn’t help but appear somewhat amateurish,” Meadow said. “Everyconstituency you deal with views you differently when you make changes early,whether investors, customers, suppliers or people you want to hire.
“To the extent you don’t seem organized and thoughtful about yourdecision-making process, it doesn’t create confidence in the underlyingproduct.”
Ideally, the company would have thoroughly tested the pricing beforerolling out the software, Meadow said. Such business missteps are common amongstartups founded with a great idea but lacking in business experience.
“It’s a question of recognizing what you’re good at and what you’re not,”Meadow said. When a company identifies a weakness, it needs to bridge the gapby bringing in an advisor or professional manager, he said.
Still, those familiar with Humanized see a promising future in Enso.
“The best way to get over obstacles is to have happy customers,” said DougMcKenna, president of Boulder, Colo.-based Mathemaesthetics Inc., who workedwith Raskin’s father and is an advisor to Humanized. “The best way to succeedis to prove you’ve got something people want and are willing to pay for.”
McKenna is hopeful, in part, because underlying the Enso software is aphilosophy of simplicity that many embrace, he said. Enso sets up “a means ofnavigating through stuff in our personal computers in a way that’s easy toaccomplish,” he said.
“If you have to [play around] with a file system or think aboutapplications, it gets in your way,” McKenna said.

A father’s influence
Aza Raskin grew up hearing his father talk about simplifying computers,said Linda Blum, his mother.
“Jef’s primary goal was to make the computer easier to use, so you wouldn’thave to think about how it worked–more like a toaster,” she said.
Jef Raskin encouraged his son to think about why things worked in a certainway, asking, “Is it good for humans or isn’t it?” Blum recalled. “They werequite close. Aza started programming with Jef when he was in 6th grade.”
Aza was home-schooled in 8th grade, with Jef Raskin teaching him algebraand pre-calculus, plus programming and shop, Blum said. When Aza was studyingmath and physics at the University of Chicago, his father was asked to teach acourse on the human interface. Aza became the teaching assistant, andHumanized principals Jono DiCarlo and Atul Varma were in the class.
Aza founded Humanized with DiCarlo, Varma and his U. of C. roommate AndrewWilson shortly after his father died, because he didn’t want the ideas tovanish. Within a few weeks, Humanized had a prototype of its software, thenspent about 18 months fine-tuning it, Aza Raskin said. The company decided todesign it for Windows-based computers, he said, “because Windows needs themost help.”
While Humanized plans to develop a Macintosh version of its Enso softwareat some point, first the company will add new offerings to the Windows line,including a more powerful calculator and a media player, Raskin said. All thesoftware will use the same unified framework, with most users accessing itthrough the Caps Lock key.
“Once you learn it, you don’t have to learn it again,” he said.
- - -
Humanizing PCs
- The software: The Enso programs aim to simplify the use of Windows-basedPCs
- Where to get them: Download from www.humanized.com
- Cost: $35 for both Enso Launcher and Enso Word

How I Did It: Tony Hsieh, CEO, Zappos.com

As told to Max Chafkin

Industry: Retail

2006 Inc. 500 Ranking: 79

Three-Year Growth: 948%

In 1998, 24-year-old Tony Hsieh sold his company, Internet advertiser LinkExchange, to Microsoft for $265 million. A year later, he met an even younger entrepreneur, Nick Swinmurn, who had an idea no investor would touch: selling shoes on the Internet. But Hsieh (pronounced shay) was intrigued and invested $500,000 in ShoeSite.com (they soon changed the name to Zappos, after zapatos, which is Spanish for "shoes"). Within six months, he and Swinmurn were running the show together. Early this year, Swinmurn moved on, leaving Hsieh at the helm of a company that had sales of $252 million in 2005.

I almost deleted the voice mail. Nick left a message saying he wanted to start a company that sold shoes online. I didn't think consumers would buy shoes sight unseen, and Nick didn't have a footwear background. It sounded like the poster child of bad Internet ideas.

But right before I hit Delete, Nick mentioned the size of the retail shoe market--$40 billion. And the more interesting thing was that 5 percent was already being done through mail order catalogs. That intrigued me. Initially, I was just an adviser. But I got sucked in.

We all sat around one day talking about what we wanted the Zappos brand to represent. We decided to be about providing the best service; we said, "We're a service company that just happens to sell shoes." But in order for that to happen, we had to control the entire customer experience. We expanded the warehouse to 77,000 square feet and stopped having manufacturers ship directly to customers. It was a scary time--drop shipping was 25 percent of revenue, and we gave it up all at once.

We thought about going under every day--until we got a $6 million credit line from Wells Fargo. It's now $60 million.

I'd rather spend money on things that improve the customer experience than on marketing. We run the warehouse 24-7--it's not very cheap or efficient, but it allows us to get the shoes out more quickly. We have a 365-day return policy with free shipping both ways.

We have to untrain employees' bad habits from previous call centers, where they're trying to be more efficient by minimizing the time they talk to the customer. If someone is looking for a specific shoe and we happen to be out of stock, we have employees direct those people to competitors' sites.

In January 2004, we decided to move to Las Vegas. It was one of those things we started talking about at the beginning of lunch, and by the end of lunch, we'd decided. We were having a hard time finding good customer service people in San Francisco. Las Vegas has a lot of call centers and lots of people who want to do customer service as a career. We announced it later that week and people were moving by March.

We interview people for culture fit. We want people who are passionate about what Zappos is about--service. I don't care if they're passionate about shoes.

The Cloud Hanging Over Skype

Early this week, eBay announced that after four years of owning Skype, the popular, and free, online phone service, it had sold the company to an investor group for around $2 billion. The investors included the Silicon Valley private equity firm Silver Lake Partners; Marc Andreessen’s new venture capital firm, Andreessen Horowitz; a London firm called Index Ventures; and the Canada Pension Plan Investment Board. Under the terms of the deal, eBay will retain a 35 percent stake in Skype, giving it a valuation of $2.75 billion.

Many people on Wall Street — and a number of telecommunications experts I spoke to this week — were stunned by the price Skype sold for, and not just because we’re in the middle of a recession. In 2005, when eBay bought Skype from its founders, Janus Friis and Niklas Zennstrom, it paid $3.1 billion. But the company had performed so poorly that by the fall of 2007, eBay had been forced to take a $1.1 billion write-down.

Around that same time, Mr. Zennstrom, whose relationship with eBay management had turned acrimonious, stepped down as Skype’s chief executive. (Mr. Friis had already left the company.) Although Skype’s performance has improved since the installation of a new chief executive last year, it was no secret that eBay was trying to unload it. Many potential buyers had walked away, believing that eBay simply wanted too much.

There is another reason that the Skype deal has raised eyebrows, however. Not long after Mr. Friis and Mr. Zennstrom left the company, they became embroiled in a dispute with eBay that has turned into a very nasty lawsuit.

It turns out that in selling Skype to eBay, Mr. Friis and Mr. Zennstrom retained control of a key part of the Skype technology, which they licensed to eBay. Although the details are under seal in a London court, the Skype founders’ essential complaint is that eBay tampered with their software, and in doing so, violated the terms of the licensing agreement. They were demanding that Skype be forced to stop using the technology, which, for all intents and purposes, would mean shutting down Skype itself. The case is set for trial in 2010.

Companies are sued all the time, of course. But this lawsuit feels different; to put it bluntly, it feels more dangerous than the typical lawsuit aimed at a corporation. In a court hearing in London last June, eBay’s lawyer told the court that if Mr. Friis and Mr. Zennstrom won the case, the result would be “devastating.”

In its financial documents, eBay says that it is “confident” of its legal position. But it also acknowledges that an “adverse result” could mean that the “continued operation of Skype’s business as currently conducted would likely not be possible.” That is hardly your typical corporate boilerplate. Indeed, after that court hearing in June, a telecom analyst named Jayanth Angl told Bloomberg that “if eBay can’t reach an agreement over that piece of technology, that could certainly turn the Skype acquisition into a debacle.”

And so, the mystery of the Skype deal: why were the winning bidders willing to pay so a high price for a company whose very existence could be threatened by this lawsuit? One possibility is that they have nerves of steel. The other is that they know something nobody else does.

•

Skype was not Mr. Friis’s and Mr. Zennstrom’s first company. No, that was the infamous Kazaa, a peer-to-peer company that the two men founded in 1999, not long after Napster showed the world exactly how easy it was to steal copyrighted music using peer-to-peer computing. By 2001, the recording industry, having routed Napster, turned its sights on Kazaa.

Going after Kazaa was tougher because it was located somewhere in Northern Europe, outside the purview of United States law enforcement. (No one knew exactly where.) The Kazaa founders moved periodically to keep the recording industry from being able to subpoena them, and for years, they stayed away from the United States for the same reason. But the recording industry kept up the pressure, and as their legal costs mounted, Mr. Friis and Mr. Zennstrom finally decided to get rid of the company and move on.

Former Skype executives will tell you that the Kazaa experience did a lot to shape Mr. Friis’s and Mr. Zennstrom’s approach to business. It made them extremely secretive. They almost never talk to the press. (They didn’t speak to me for this column.) And it also made them extremely protective of the technology they created. Which is why, long before they sold Kazaa, they moved their peer-to-peer software into a new company, called JoltID.

In 2003, when they started Skype, that same technology that had powered Kazaa became an important part of the Skype code; it was the means by which computer users connected to each other and created a larger network. (VoIP — voice over Internet protocol — was the means by which they spoke to each other online.) But Skype never owned the technology; JoltID did.

Why eBay was willing to go along with such an arrangement when it bought Skype two years later will forever be a puzzle. But so long as the two men remained part of the eBay “family,” it didn’t matter much. Any changes to the peer-to-peer code were ones they approved.

When the deal went sour, however, and the founders left eBay, that all changed. And when eBay continued to tinker with the code — something eBay contends it has a right to do under the license — they entered into negotiations that went nowhere. Finally, by March of 2009, the two sides had sued each other.

At the same time, the founders, together with some big private equity firms, including Elevation Partners in Silicon Valley (yes, the Bono firm), and General Atlantic in New York, were trying to buy back Skype. It was, after all, their one big success. (Their third start-up, Joost.com, has gone nowhere.)

It is hard to know precisely what happened next. EBay claims that all the bidders were treated the same, and that the losers simply didn’t put up as much money as the winner. But according to supporters of the Skype founders, their investing consortium made three serious efforts, over the course of a year, to bid for the company. Every time, they say, they were stiff-armed by eBay’s investment bankers. About a month ago, they wrote a letter to eBay protesting their inability to get a hearing for their proposals.

And maybe the Skype founders did try to buy back the company on the cheap. The sense I got, however, is that the founders would have been willing to come up with a price that suited eBay — if they had been able to enter into negotiations. What is clear is that the bad blood that had developed between eBay and the founders was infecting the potential negotiations over a buyback of the company. (EBay denies this.)

And then, a few months ago, out of the blue, came the $2 billion bid from the Silver Lake consortium. One way it has dealt with the litigation risk is by persuading eBay to assume 50 percent of any losses resulting from the lawsuit. But that still doesn’t mitigate against the possibility that the founders could win the lawsuit — and put their creation, Skype, out of business.

So why were they willing to bid so high? One theory is that the Silver Lake people think they can win in court. Indeed, if by next summer the two sides are still arguing in court, we’ll know that is the answer to the mystery. That is the “nerves of steel” theory.

But how likely is that? In this environment, big-time private equity firms don’t commit $2 billion if there is a serious possibility the company they’ve just bought might be put out of business. As it happens, not long before Index Ventures became interested in Skype, it brought on board a man named Michelangelo A. Volpi, a highly respected former Cisco executive who — hmmm — once sat on the Skype board. In fact, he was so well liked by the Skype founders that they hired him to run Joost. Wouldn’t you know it? Joost uses the same peer-to-peer technology as Skype and Kazaa.

Mr. Volpi told me that not long after he arrived at Index Ventures, he discussed the possibility of making a run at Skype — and he and another Index Ventures partner, Danny Rimer, in turn rounded up Silver Lake and Mr. Andreessen, who — hmmm — sits on the eBay board. (As soon as he got involved with the bid, Mr. Andreessen recused himself from any board discussion about the Skype sale.) In the end, Mr. Andreessen committed $50 million to the deal — a very large percentage of his $300 million venture fund.

So another theory: because of his friendship with the Skype founders, Mr. Volpi believes he’ll be able to settle the lawsuit. Rich Tehrani, the president of TMC, a telecom publishing company, told me that he had just come from a conference where rumors were rife that the Silver Lake consortium had already cut a side deal with the Skype founders. (All the parties deny this.)

The third possibility is that Mr. Andreessen and the others have figured out a technology “workaround” so they no longer have to rely on the JoltID technology, something eBay had already begun working on. But almost everyone I spoke to said such a workaround would be, at best, difficult and expensive — and could cause such severe disruption to Skype’s business that it might never recover.

It is, alas, unsatisfying to delve into a mystery like this and not be able to solve it. But over time, it will become clear. Either the case will linger, and we’ll know that Silver Lake, Andreessen et al. do indeed have nerves of steel.

Or it will quickly go away, which will provide an answer of a less seemly sort. The mission of Skype, after all, is to shrink the world and bring people together.

 

Venture Firm’s ‘Green’ Funds Top $1 Billion

Vinod Khosla says most clean-tech companies need only a few million dollars to prove that their technology works.

Vinod Khosla, the prominent venture capitalist who has been investing hundreds of millions of his own dollars in green technology companies for the last several years, will now invest other people’s money, too.

Khosla Ventures, the firm he founded in 2004 after leaving Kleiner Perkins Caufield & Byers, is announcing on Tuesday that it has raised $1.1 billion in two funds that will invest in green technology and information technology start-ups.

This is the largest amount raised by a venture capital firm since 2007 and the largest first-time fund raised since 1999, according to the National Venture Capital Association.

Khosla Ventures will make initial investments of $5 million to $15 million from its main $800 million fund. The smaller $275 million fund will seed very early-stage ideas with investments of around $2 million.

“It’s really geared toward science experiments,” Mr. Khosla said. “The goal there is very much to take risks that nobody else will take.”

The new funds fly in the face of two of the prevailing investment philosophies in Silicon Valley. In response to diminishing venture capital returns, investors have been advocating small funds of only a few hundred million dollars and staying away from high-cost, high-risk alternative energy companies.

Mr. Khosla advocates precisely the opposite. Harnessing technology to address climate change will require the big risks that venture capitalists were once known for, he said. “We’re really about reinventing the infrastructure of society, which is the only way we’ll get the carbon footprint down, and we’re not afraid to fail.”

After a period of hyperactive investment in alternative energy start-ups, investors have been shying away from them, arguing that they cost too much. In the first half of 2008, venture capitalists funneled $2 billion into 139 clean tech start-ups. In the first half of this year, they invested only $513 million in 83 such companies, according to PricewaterhouseCoopers.

But Mr. Khosla said the notion that clean tech companies were too capital-intensive for venture capital was a myth. A start-up needs only a few million dollars to prove that its technology works, he said. If it does, it will attract interest from investors and big companies that may want to license the technology.

“This is the 1980s style of venture capital — real technical risk with small amounts of money and small teams,” said Mr. Khosla, who co-founded Sun Microsystems. “Clean-tech companies taking large amounts of money — that’s project finance, not technical risk. That’s a differentiation most people have lost.”

Mr. Khosla, along with partners who have joined the firm, has been investing upward of $400 million of his own money in such companies. They include companies that reduce dependence on coal and oil, make materials like concrete or plastic in an environmentally friendly way and increase energy efficiency.

One company used less than $10 million to show that improved membrane chemistry could be used to make water desalination plants more energy-efficient. Another company is working on compressor-free air-conditioners. Calera, a third company, takes the carbon dioxide produced by burning coal and drives it through water to convert it to carbonate and then cement. Calera is already producing concrete at a pilot plant in California.

Mr. Khosla invests when start-ups are barely more than an idea, and expects many of them to fail. That strategy worked fine when he was investing his own money, but could have been a hard sell to outside investors, which is why the firm started a separate seed fund for these high-risk deals.

“The terms I used to describe our seed fund were, ‘We don’t expect to be fiduciary all the time. We will often invest in things that have a high probability of failure,’ ” Mr. Khosla said. Yet to his surprise, there was more interest in that fund than the other.

“We insisted on being in a fund like that,” said Joncarlo Mark, head of private equity investing for Calpers, the California Public Employees Retirement System fund, which invested $60 million in Mr. Khosla’s riskier small fund and $200 million in the big fund. “The opportunity to partner with Vinod in his science experiments to us is as attractive as having a later-stage fund investing in more established businesses.”

One reason Mr. Khosla’s investors are comfortable with the firm’s high-risk bets is that the partners have invested at least $100 million of their own money in the fund, Mr. Mark said.

To help the five partners invest the money, Khosla Ventures has hired two new partners: Gideon Yu, former chief financial officer at Facebook, and James Kim, who ran the clean-tech practice at the venture firm CMEA.

When choosing partners, Mr. Khosla said his top priorities were finding people who had operational experience inside companies, not just M.B.A.’s, and technical expertise, two qualities he said were all too rare in Silicon Valley these days. He throws out résumés from English majors, preferring engineers who can have spirited discussions with entrepreneurs about technical risks.