Russia Raids Office of U.S. Web Server Giant in Copyright Clash

(Bloomberg) -- Russian police raided the offices of Nginx Inc., a U.S. company behind one of the largest web server projects, and briefly detained its founder in a case that could stoke renewed fears of law enforcement being used to settle corporate disputes.

Russia’s Rambler Group, the parent company of one of the country’s biggest search engines and internet portals, said in a statement Thursday it uncovered copyright violations to its exclusive rights to Nginx, which was acquired by Seattle-based F5 Networks Inc. this year in a deal that valued the company at $670 million.

The dispute centers around the development of Nginx’s original open-source web server code by Igor Sysoev when he worked at Rambler nearly two decades ago, so Rambler sees itself as the rightful owner of the code. Nginx was first released publicly in 2004. It now controls more than 30% of the server market for web-facing computers, behind only the Apache Foundation, according to Netcraft, which monitors the industry.

The raid is the latest example of the widespread use of Russian law enforcement in corporate disputes. U.S. investor Michael Calvey, one of the most successful private equity investors in Russia, was jailed this year and remains under house arrest over what he claims is a business conflict.

Maxim Konovalov, who co-founded Nginx Inc. in 2011, linked the raid to the May sale of the company. He and his partner Sysoev were briefly detained during the Thursday raids of their apartments and the company’s Moscow office.

“We fear for our freedom,” Konovalov said by phone. “Rambler didn’t pay attention to us in the preceding years.” Konovalov said he and Sysoev are “not going to flee Russia. We will stay and we will fight.”

Igor Ashmanov, who was an executive at Rambler when Sysoev worked there, said Sysoev had started developing the technology underlying Nginx before he joined the company. Sysoev left Rambler in 2011 to co-found Nginx. The company is based in San Francisco but has offices around the world.

Yandex NV, Russia’s biggest tech company, called the raid a “very bad signal.” Several IT industry associations condemned the action, according to an open letter published on the Govorit Moskva radio station’s website.

Rambler, owned by billionaire Alexander Mamut and Sberbank PJSC, said it ceded its rights to Nginx to a Cyprus-owned holding company, Lynwood Investments CY Ltd.

Lynwood is controlled by Mamut’s son Nikolai, according to Interfax news agency.

Lynwood said by email it informed law enforcement about the situation and the authorities opened up a criminal case. The company declined to comment on its ownership.

F5 and the police did not immediately respond to requests for comment.

Sberbank First Deputy Chief Executive Lev Khasis, who is the chairman of Rambler’s board, said he found out about the dispute via media reports and has requested an extraordinary board meeting this month to deal with it.

“I don’t like that this is a criminal trial,” Sberbank Chairman Herman Gref told Forbes, adding that this is a case for the arbitration court.

Despite pledges from President Vladimir Putin to better protect business from inappropriate pressure from law enforcement, it remains a common tool to settle commercial disputes in Russia.

A survey by the Kremlin’s business ombudsman found 84% of business executives who are subject to criminal investigations end up losing part or all of their business, RBC reported earlier this year.

--With assistance from Anna Baraulina and Ilya Arkhipov.

To contact the reporters on this story: Stepan Kravchenko in Moscow at skravchenko@bloomberg.net;Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editors responsible for this story: Torrey Clark at tclark8@bloomberg.net, Molly Schuetz

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