According to various reports, Russian police have raided the Moscow office of Nginx, arresting, detaining, and interrogating the co-founders of the company, then releasing them. Nginx is a popular software used by hundreds of millions of websites and infrastructure companies including Netflix, Facebook, and some CDNs.
Nginx, co-founded by Russian software engineers Igor Sysoeve and Maxim Konovalov was acquired by F5 Networks for $670M. Little did F5 know it would be involved in a Russian soap opera. Rambler, the company suing Nginx is controlled by Russian Oligarch Alexander Mamut. Initially, a criminal complaint was filed against Nginx, however, one of Russia’s largest banks, Sberbank, which owns 46.5% of Rambler, scolded Rambler for filing a criminal complaint, so they downgraded it to a civil suit.
Russian engineers Igor Sysoev and Maxim Konovalov worked at Rambler, a Russian-based Yahoo-like entity nine years ago. Igor worked there as a systems administrator for almost 11 years, leaving in May 2011, then started Nginx in June 2011. Maxim worked there as CTO for 3 years, leaving in May 2011, joining Igor at the same time. Eventually, the pair open-sourced Nginx, and millions of websites started using it as a reverse proxy / caching platform. Rambler claims the founders started working on Nginx while still employed there.
After running Nginx as an open source product for several years, the duo raised money, hired a seasoned executive team, then created a commercial version of Nginx. Netflix, which runs a global content delivery network called Open Connect built its caching platform on Nginx. Also, some CDNs are using Nginx including Cloudflare. However, Cloudflare is using the open source product and it’s likely to have been rewritten many times over. That’s what CDNs do, they use open source software, then completely rewrite it to suit their global scaling needs.
Here’s where it gets interesting. If Rambler were to win a lawsuit against Nginx, there would be a ripple effect throughout the Internet world, impacting an untold number of companies. In theory, Rambler could tax companies for using Nginx, including Netflix, similar to what Adobe did with its FMS product many years back, but that practice ended when Steve Jobs decided to ditch FMS for its own service HLS. However, Rambler filed suit in a Russian court. If the Russian court rules in favor of Rambler, the global community using Nginx will yawn, and go back to business as usual.
The good news, F5 is now in direct negotiations with Rambler working out a settlement. The global community stands behind F5, and in the most simple terms, F5 will have to take one for the team (global community) and pay Mr. Oligarch. The lesson learned here, the next time a Western company decides to buy a Russian startup, the first checkbox on the M&A due diligence form must be “did the founders work for a Russian Oligarch in the past”, if yes, then, be overly cautious.