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Skype deal averts shutdown, allows sale

The VoIP company's founders will regain some control over the firm and eBay will be able to sell off a majority stake in Skype, after settling an intellectual property dispute
Written by David Meyer, Contributor

Skype's founders Niklas Zennström and Janus Friis are to regain some of their control over the company as part of a deal that will let Skype carry on using its core peer-to-peer technology.

The deal means Skype's owner eBay can go through with its plans of selling off a majority stake in the VoIP firm to the Silver Lake investor group. On Friday, eBay said Silver Lake had reached a settlement agreement with Zennström and Friis's company Joltid, which owns the Global Index Software P2P technology.

"Skype will be well positioned to move forward under new owners with ownership and control over its core technology," eBay chief executive John Donahoe said in a statement. "At the same time, eBay continues to retain a significant stake in Skype and will benefit from its continued growth. We look forward to closing the deal and focusing on growing our core e-commerce and payments businesses."

Skype, owned by eBay since 2005, licenses Global Index Software from Joltid, but earlier this year the two companies fell out over the licensing terms.

Skype and Joltid launched UK lawsuits against each other in the first half of the year, while Joltid initiated another copyright suit in the US in September, claiming Skype was infringing on its intellectual property rights "at least 100,000 times each day" in that country alone.

According to eBay's statement, Silver Lake has now reached a settlement with Joltid and Joost, Zennström and Friis's internet TV company. Under the terms of the agreement, Zennström and Friis will join Silver Lake, contributing Global Index Software to Skype and making a "significant capital investment in exchange for a 14 percent stake in Skype".

All of Joltid's litigation against Silver Lake and eBay will cease when the deal closes later this year, according to the statement.

Silver Lake, along with investors such as Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB), will control 56 percent of Skype. EBay will retain a 30 percent share, and will receive around $1.9bn (£1.1bn) in cash when the deal closes later this year.

The deal values Skype at $2.75bn. When eBay bought Skype, it paid $2.6bn, but it took a $900m write-down on its acquisition in 2007 after failing to integrate the service with its core internet auctioneering business.

According to Rob Cotton, the chief executive of software escrow provider NCC Group, eBay and Silver Lake now find themselves in an uncomfortable position, due to eBay's oversight in buying Skype without ensuring it would also receive the core P2P technology.

"In failing to properly establish ownership of Global Index from the outset, or put an escrow agreement in place between itself and Joltid to ensure the technology's ongoing availability, eBay has managed to throw away a $400m stake in Skype," Cotton said in a statement on Friday.

"Furthermore, the business' new investors... will be less than pleased with their disruptive new partners, Niklas Zennström and Janus Friis, who, up until recently, they were engaging in a fierce court battle."

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