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Skype saved by licensing deal

Skype saved by licensing deal

Online auction house eBay has announced a settlement with Skype’s founders and former owners, saving the VoIP provider from potential shutdown due to a licensing issue over key technology.

eBay recently admitted that in 2005, when it shelled out $2.6bn for Skype, it failed to secure rights to the VoIP provider’s underlying technology. In a filing to the US Securities and Exchange Commission (SEC) in August, eBay warned that Skype depends on key technology that is licensed from third parties. The third party in this case is Sweden-based Joltid, a peer to peer technology firm run by none other than Skype’s founders and ex-owners Niklas Zennström and Janus Friis. And the technology in question, which eBay licenses from Joltid, affects Skype’s underlying peer to peer architecture and firewall traversal technology and the video compression/decompression.

Potential repercussions in the event of eBay’s failure to maintain these licensing agreements include the shutting down of the Skype service. Yet the firm seems to have found a solution, announcing that the investor group led by Silver Lake, which recently entered into an agreement to acquire a majority stake in Skype, has reached a settlement agreement with Joltid that gives Skype ownership over all software previously licensed from Joltid and ends the litigation.

As part of the settlement agreement, Joltid and Skype founders Zennström and Friis will join the investor group, contributing Joltid software and making a significant capital investment in exchange for a 14 per cent stake in Skype. As a result, Silver Lake and other investors including Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB), will together hold 56 per cent of Skype and eBay will retain 30 per cent. The investor group will no longer include Index Ventures, which has withdrawn.

eBay will receive approximately $1.9bn in cash upon the completion of the sale of Skype to the investment consortium and a note from the buyer worth $125m. The deal, which values Skype at $2.75bn, is expected to close in the fourth quarter of 2009.

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