Russian Streaming Service Zvooq Sues Internet Firm Yandex for 'Poaching' Staff

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The Russian streaming service Zvooq is suing the local Internet giant Yandex for $29 million for alleged breach of contract.

Victor Frumkin, Zvooq co-founder and CFO, tells Billboard that Yandex was in breach of a Non-Disclosure Agreement stipulating "no poaching" of Zvooq employees by Yandex.

According to Frumkin, Yandex originally was among companies that considered investment in Zvooq, one of the most promising players in Russian streaming segment, or, possibly, the acquisition of the company.

"We had bids in hand from international as well as local strategic buyers, until Yandex staged actions which were clearly in breach of our agreement with them, and counter to civilized corporate morals and ethics," Frumkin says.

What enraged Zvooq was that amidst negotiations between the two companies, Yandex hired Zvooq’s marketing director Varvara Semenikhina in an identical position for its streaming service, Yandex.Music.

Zvooq claims that Yandex was never serious about a possible investment and was only looking to poach a key employee to develop its competing service. Zvooq estimates losses from the failed deal and the poaching at $29 million.

The Internet giant, however, shrugs off the accusations from Zvooq.

"We have been notified about the lawsuit and we are very surprised," a spokesperson for Yandex tells Billboard. "Yandex did not violate any agreements with Zvooq or poached its employees."

"All statements from Zvooq are based on populist rhetoric and are not true," she goes on to say. "We will answer all legal claims in court as we are confident about our stand."

The court case is to be heard in Limassol, Cyprus, where Zvooq's head company is registered, and the date is yet to be determined.

Launched in 2009, Zvooq is part of Dream Industries. It is believed to be Russia's fourth largest music streaming service, behind Yandex.Music, Google Play and Apple Music. (As Google and Apple don't disclose their user numbers, it is only possible to roughly estimate the size of their user bases.)

In 2014, Zvooq raised $20 million in investment from the Finnish private equity fund Essedel Capital and the Russian electronic retailer Ulmart, which owns a 40 percent stake in Zvooq. Earlier this year, a consortium led by Ulmart provided another $5 million investment.