eBay Settles Skype Lawsuit

The future of voice-over-IP service Skype looks bright again for its more than 500 million users.

eBay Nov. 6 said it has settled lawsuits with Joltid and Joost in a $1.9 billion (£1.13bn) deal that gives Skype ownership over all software previously licensed from Joltid and paves the way for a group of investors to acquire the majority of the company.

On 1 Sept, eBay agreed to sell 65 percent of Skype to an investor group, led by Silver Lake Partners and including Index Partners and Andreessen Horowitz, Marc Andreessen’s venture capital company.

Skype Founders Niklas Zennström and Janus Friis, through their new peer-to-peer company Joltid, sued Skype, eBay and the would-be investors for copyright infringement in California district court on 16 Sept.

One month later, they teamed with Web video startup Joost to sue to block Index Ventures and former Joost CEO Mike Volpi from participating in the deal. Joltid and Joost alleged that Volpi used confidential information in forging the deal.

Zennström and Friis emerged victorious in this settlement agreement on 6 Nov. while Index Ventures was forced out. Joltid, Zennström and Friis, who had earlier tried to buy Skype back from eBay, will join the investor group, contributing Joltid software and making a “significant capital investment” in exchange for a 14 percent stake in Skype.

Silver Lake and fellow investors Andreessen Horowitz and the Canada Pension Plan Investment Board will grab 56 percent of Skype, with eBay retaining the remaining 30 percent.

Pursuant to the original financial terms, which valued Skype at $2.75 billion, eBay will receive $1.9 billion in cash upon the completion of the sale and a note from the buyer in the principal amount of $125 million.

The parties expect the deal to close in the fourth quarter.

Commenting about being left out of the marriage, Index Ventures partner Danny Rimer said, “The deal terms changed for Index such that it no longer matches our investment criteria, and thus we have decided not to participate in the transaction.”

While this saga had all of the makings of a grudge match between Zennström and Friis and Volpi, the man they lured from Cisco Systems to run Joost, Joltid and Skype were previously embroiled in an intellectual property licensing struggle.

eBay licenses P2P software from Joltid called the Global Index, which enables Skype to let users make voice calls from their computers to other computers and land-line and mobile phones. In March, Skype and Joltid sued each other over Skype’s right to use the technology. Joltid alleged that Skype not only unlawfully modified its Global Index source code but made it available to third parties.

Today’s settlement brings closure to those disputes as well. Bernstein Research analyst Jeffrey Lindsay noted:

“This is consistent with our previous expectations, as Joltid’s motivations appeared to be centered on extracting additional value for itself (either through a settlement or by knocking down Skype’s valuation so it could put in its own bid).”