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Skype to be scrapped?

August 1st, 2009 at 03:12am

An interesting story from The Age (which seems to have grabbed it from sister publication The Sydney Morning Herald) which should have every other VOIP provider on the planet salivating.

eBay says it may have to shut down Skype due to a licensing dispute with the founders of the internet telephony service.

The surprise admission puts a cloud over the 40 million active daily users around the world who use Skype for business or to keep in touch with friends and far-flung relatives.
The online auction powerhouse bought Skype from entrepreneurs Niklas Zennstrom and Janus Friis for $US2.6 billion in 2005, but this did not include a core piece of peer-to-peer communications technology that powers the software.

eBay has since been licensing the technology from the founders’ new company, Joltid, but the pair recently decided to revoke the licensing agreement.

The matter is now the subject of a legal battle in the English High Court of Justice, with eBay trying to force Joltid to let it continue using the technology.

In a quarterly report filed with the US Securities and Exchange Commission, eBay said in no uncertain terms that if it lost the right to use the software it would most likely have to shut Skype down.
In the filing eBay also said that, even if it was successful in developing alternative software, the technical challenge of assuring backward compatibility with older versions of Skype’s technology ‘‘may be difficult to overcome’’.

The story lacks any better description of what part of the program, precisely, it is that the licence dispute is in relation to…and “a core piece of peer-to-peer communications technology” is so vague that I’m forced to wonder what eBay are hiding. I can’t find any press releases on the subject, so it looks to me as if eBay are trying to keep this as quiet as possible.

The story seems to be based on the following section from page 15 of Skype’s quarterly report (to the end of June 30, 2009) to the United States Securities and Exchange Commission, but even there they seem to be keeping details to an absolute minimum:

Skype licenses peer-to-peer communication technology from Joltid Limited pursuant to a license agreement between the parties. The parties had been discussing a dispute over the license.

In March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties. In particular, Joltid has alleged 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. On the basis of, among other things, the parties’ mutual dealings since the execution of the license agreement, Skype asked the English High Court for declaratory relief, including findings that Skype is not in breach of the license agreement, that Joltid’s notice of breach and subsequent notice of termination are invalid, and that Joltid has certain indemnity obligations in relation to the U.S. patent proceedings.

Trial 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. Skype has begun to develop alternative software to that licensed through Joltid. However, such software development may not be successful, may result in loss of functionality or customers even if successful, and will in any event be expensive.

If Skype was to lose the right to use the Joltid software as the result of the litigation, and if alternative software was not available, Skype would be severely and adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.

(line breaks added for readability purposes)

eBay have known about this issue since March, and we are only hearing about it now. It really makes me wonder just how serious this issue is. eBay have the ability to disable the entire service simply by shutting down the login servers, so shutting down the service isn’t a hollow threat…clearly the risk of that is high enough for them to not want to make much noise about it.

Watch this space.


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