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eBay Warns of Risks to Skype Service

Will Skype Be Scuppered?

2 min read

eBay Warns of Risks to Skype Service

eBay must sometimes wonder why it ever bought Skype. Back in 2007, after paying $$2.6 billion in 2005 to purchase it, eBay took a $1.39 billion goodwill impairment charge to reflect what it thought was realistically the true value of its Skype acquisition.

Then in 2008, Skype said that it was not aware that China was monitoring, censoring and then archiving text messages that contained certain politically sensitive words that were sent on Tom-Skype, a joint venture between Chinese Internet service provider Tom Online and Skype.

Last month, the Russian Union of Industrialists and Entrepreneurs, Russia's most powerful business lobby and one that is associated with Prime Minister Vladimir Putin's political party, pushed to have Skype declared a threat to Russian national security.

Then today, there are news reports that eBay is developing new software for Skype because of its legal dispute with Joltid, which owns the patents to the peer-to-peer networking software Skype uses and which Joltid licenses (or licensed) back to eBay.

As described in eBay's 10-Q 2009 second quarterly filing with the US Security and Exchange Commission (SEC), earlier this year Jotlid:

"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."

As a result of this allegation, in March 2009, eBay said that Skype sought relief and clarification of its license in the English High Court of Justice, which caused Joltid to decide to terminate its license.

As I noted here in April, Skype founders Niklas Zennstrom and Janus Friis have been pooling their own money as well as approaching private equity firms in a plan to buy Skype back from eBay.

While eBay said it was "confident of its legal position", it was also doing a bit of risk management.

eBay noted in its SEC filing that,

"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."

eBay said that Skype has contributed $170.0 million in revenue for the quarter, representing a 25% year-over-year growth. It also said that Skype also added 37.3 million registered users during the quarter and ended the period with more than 480.5 million registered users.

I guess Skype users might want to start using it a bit more while the getting is good.

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