Founder of Skype software, through a company run by them, have reportedly on Wednesday filed a copyright suit against online auction and shopping services provider eBay, Inc. (EBAY), its current owner, Skype as well as the proposed buyers of Skype, over breach of licensing terms whereby Skype had no right to use or modify certain code. The suit was filed in the Northern California U.S. District Court.
Joltid Ltd., a company owned by the founders of Skype, filed the lawsuit seeking an injunction against Skype and damages for copyright infringements. eBay reportedly acknowledges that the lawsuit could act as an hindrance to eBay's proposed sale of 65% stake in Skype for about $1.9 billion in cash, to an investor group led by private equity firm Silver Lake Partners, agreed upon at the beginning of the month.
Joltid's suit claimed that Skype used the global index software "in manners unauthorized by Joltid", since at least 2007, such as making the software available to third parties, as well as copying and altering it.
In a statement, a Joltid spokesman reportedly said, "the company would vigorously enforce its copyrights and other intellectual property rights in all of the technologies it has innovated."
eBay added, "Their allegations and claims are without merit and are founded on fundamental legal and factual errors. We remain on track to close the transaction in the fourth quarter of 2009."
The investor consortium led by Silver Lake include London-based premier global venture capital firm Index Ventures, Andreessen Horowitz, a recently launched venture capital firm led by Netscape founder Marc Andreessen and Ben Horowitz, as well as the Canada Pension Plan Investment Board or CPPIB. Silver Lake is the leader in private investment in technology, technology-enabled, and related growth industries. Silver Lake invests with the strategic and operational insights of an experienced industry participant.
The Skype Group was founded by Swedish-born entrepreneur Niklas Zennström and the Dane Janus Friis. Skype was introduced in July 2004, and more than a hundred million people downloaded the software within a year. In the fall of 2005, Skype claimed having about 40 million active users and was subsequently acquired by eBay for $2.6 billion in October 2005. Skype's founders, Friis and Zennstrom left Skype in 2007, two years after eBay bought it.
The founders formed another company called Joltid Ltd., which has been embroiled in an intellectual property dispute since March 2009 with Skype. Skype licenses peer-to-peer communication technology called "global index" from Joltid pursuant to a license agreement between the parties. The founders retained ownership of the technology when they sold Skype to eBay in 2005. Sources last week said Zennstrom and Friis had contacted several private equity firms to try and buy back their old business.
In March, pursuant to Joltid terminating Skype's license for the software, Skype Technologies S.A. filed a claim in the English High Court of Justice against Joltid. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties, alleging that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement.
Joltid has brought a counterclaim alleging that Skype has repudiated the license agreement, infringed Joltid's copyright and misused confidential information. Trial on the suit is currently scheduled for June 2010.
Although Skype is confident of its legal position, as with any litigation, there is the possibility of an adverse result if the matter is not resolved through negotiation. Meanwhile, Skype has begun to develop alternative software to that licensed through Joltid.
eBay had written down Skype to $1.7 billion on its books and announced plans on April 14, 2009, to spin-off Skype through an initial public offering or IPO in 2010 However, as eBay prepared for the IPO, the company had noted that it would naturally consider bids for Skype that offered an attractive valuation.
eBay added that the current deal achieves its goal of delivering short-and long-term value to eBay and its stockholders, without the possible delays and market risk of an IPO. eBay would also benefit from the talented partners in the investor group, which would help Skype accelerate its growth momentum, as it retains a 35% stake in Skype.
EBAY closed Wednesday's regular trading session at $24.32, up $0.18 or 0.75% on a volume of 26.31 million shares, higher than the three-month average volume of 19.12 million shares.
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