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eBay warns Skype in danger of shutdown

Internet auction house eBay made a worrying admission late last week – not only did it pay almost $1bn too much for online telephony darling Skype, it also failed to secure rights to the VoIP firm’s underlying technology.

In a filing to the US Securities and Exchange Commission (SEC) late last week, 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.

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. “Although Skype has contracts in place with its third-party technology providers, there can be no assurance that the licensed technology or other technology that we may seek to license in the future will continue to be available on commercially reasonable terms, or at all,” eBay said.

“The loss of, or inability to maintain, existing licenses could result in a decrease in service quality or loss of service until equivalent technology or suitable alternatives can be developed, identified, licensed and integrated,” the company continued.

In its filing, eBay said that Skype is developing its own alternatives to the technology it licenses from Joltid. However, the company admitted it faces technical challenges and future technology may not be backward compatible.

eBay’s concern seems to stem from a court filing in March, 2009, in which Skype and Joltid came to legal blows over the technology licensing terms. Joltid argues that because Skype does not own the underlying code for its product, it has violated the licence terms by disclosing such code in other US-based patent cases. As a result, Joltid is threatening to terminate the agreement with Skype. A trial is currently scheduled for June 2010, but eBay warns that it might have to radically change or even shutdown Skype if it loses a case against Joltid and has no other alternative.

As if that wasn’t enough to worry about, the company also expressed concerns about the net neutrality debate, and operators considering charging Skype to carry its traffic over the internet.

In late 2007, Zennstrom stepped down as CEO of Skype, just as eBay wrote down the value of the Skype acquisition, admitting that it paid almost $1bn too much for the company in 2005, when it shelled out $2.6bn.

In April, eBay announced that it plans to separate Skype from the parent company via an IPO in the first half of 2010.

Skype claimed over 480 million users at the end of June.


8 comments

  1. Avatar PK 03/08/2009 @ 6:58 pm

    An obvious solution is that eBay should ask Apple to help and even do a merger with their iChat platform.

  2. Avatar Lyle Stephens 03/08/2009 @ 7:00 pm

    I’m sure each of us has a list of apps that have been taken over from their developers and then abandoned or screwed up by their new owners. MusicMatch Jukebox is at the top of my list. I would like to get rich too, by selling a good idea to someone else, but as a customer who helped pay for the development of someone else’s good idea, I feel screwed by the guys who took the money and ran.

  3. Avatar Frequent Skype User 03/08/2009 @ 7:41 pm

    I am just glad Microsoft didn’t buy it, or else it would be either gone or tied to Win 7.

  4. Avatar PT 04/08/2009 @ 2:49 am

    Money may be the underlying evil. eBay should do something to rebuild a relationship / agreement with Joltid and save Skype.

  5. Avatar masimons 04/08/2009 @ 5:00 am

    If ebay folds to this, they are idiots. Skype having IP related to the same people selling the comapany to ebay is ripe for lawsuits.
    Simple matter of disclosure.

  6. Avatar Greg 06/08/2009 @ 4:56 pm

    One-word solution: Broadvoice.
    Bye bye Skype.

  7. Avatar Per-Fredrik Hagermark 06/08/2009 @ 5:30 pm

    Very interesting that ebay spent that kind of money without fully controlling the code that goes into the service. Due Diligence could have been better I guess.

    Or as previous comments claim, this can all be part of negotiation tactics since the founders of Skype have tried to buy it back from eBay. Will be interesting to follow, a shame to lose great service if it comes to that.

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