Zvooq, Russia’s Spotify, sues Yandex for $29M after key staff were allegedly poached

Zvooq, a music streaming service in Russia and CIS countries backed by major Western labels, is suing Yandex for $29 million. It accuses the Russian search giant of poaching key Zvooq staff for its own music streaming service, in contravention of an NDA the two parties allegedly signed in February of this year.

Zvooq, which is run out of Moscow but legally based in Cyprus, charges Yandex with unfair competition and of breaching the NDA, signed after it showed interest in becoming a potential strategic investor in the startup.

In that NDA, Yandex was prevented from soliciting Zvooq employees, or encouraging their dismissal within six months of the NDA being signed.

However, alleges Zvooq, this Spring, Varvara Semenikhina, marketing director of Zvooq, received an offer from Yandex and thereafter became marketing director of Yandex.Music, the music streaming service owned and run by Yandex.

Semenikhina had been at Zvooq since July 2014 and was, alleges the company, “intimately involved” in the development of the platform and was also privy to its future business plans.

Zvooq also says the move by Yandex coincided with its plans for a major transaction, scaring off potential investors or acquirers.

Victor Frumkin, co-founder of Zvooq says: “We initiated the lawsuit because we believe that unfair competition and bad business practices affects the entire online industry in a negative way, and its a fragile one in Russia in these times. A free and open market works effectively only when basic rules of fair competition are complied with by key players. Only this way can companies with the best business models and most innovative ideas can improve consumer lives, as is the example with Zvooq. If basic rules of corporate conduct and market principles are not upheld, if commitments of signed agreements are not observed, only companies with close political ties and moral absenteeism will remain alive in markets like Russia where protectionism is high on the agenda in the current geopolitical climate.”

Frumkin continued: “Yandex’s actions are unacceptable, and should not be left unpunished, because they illustrate to the world that Russia is a country with a yet immature business culture with high risks for investors. As far as I know, we are not the only ones who have experienced this behavior by Yandex — and we want to put a stop to it, in order to prevent devastating consequences of further bad business practices for the industry on the whole.”

Zvooq’s legal statement was filed with the District Court of Limassol (Cyprus), where the NDA was also signed, which means the case comes under English law.

A Yandex spokesperson told TechCrunch: “We were quite surprised to have been notified of this court case. An agreement with Zvooq was never violated as there was no solicitation on our part. Their rhetoric over the past few days does not reflect the reality of the situation. We are sure of our legal position and will defend it in court. Due to confidentiality, we cannot offer any more details on our relations with Zvooq.”

Varvara Semenihina, allegedly poached from Zvooq by Yandex, says: “There was no headhunting. Zvooq and I agreed that I would leave long before I sent my CV to Yandex”.

Zvooq also maintains that Yandex is also providing a one-sided account of the case to local media in Russia.

A source close to the Russian tech scene commented on the case: “Yandex had been the poster child of Russian tech, but as Google has gradually pushed them in to second place in Russia, and amid the geopolitical and economic insularity, they’re acting like a bull in a China shop. Small startups like Zvooq and others are being screwed over and caught in the cross-fire by actions like this more frequently.”

Zvooq says it has a catalog of more than 25 million tracks and provides its users with legal content from major rights-holders, including Universal Music Group, Sony Music Entertainment, Warner Music and several of the major outlets.

In June this year Zvooq attracted a $5 million investment and entered into a partnership with major mobile phone operator Tele2. Zvooq is believed to be Russia’s fourth largest music streaming service, behind Yandex.Music, Google Play and Apple Music.

In August 2014, Zvooq closed a $20 million Series A funding round, led by local retailer Ulmart, with Finnish private equity firm Essedel Capital chipping in.