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.