14 DAY TRIAL // When eBay announced it had sold a majority stake in Skype a few weeks behind, it looked like all its problems were mostly over. This week's developments turned that expectation on its head after Joltid sued Skype for several counts of copyright infringement. Just a few days later, Joost, another company controlled by the two former owners, sued former Joost Chairman and CEO Mike Volpi, who is now employed by Index Ventures, one of the investment companies that bought a stake in Skype.
eBay bought Skype for $3.1 billion in 2005
The reasons for the strings of lawsuits go back to Skype's initial sale to eBay, when the auction giant bought the VoIP company from Janus Friis and Niklas Zennstrom and ended up paying $3.1 billion. The relations between the two sides quickly deteriorated after Skype, still run by Zennstrom, failed to meet several performance markers. As a result, eBay fired Zennstrom and only payed one third of a potential earnout of $1.7 billion.
Zennstrom didn't take this lightly, but he had one very big trump card under his sleeve. One aspect of the initial sale that would come back to haunt eBay was the fact that a crucial piece of Skype's underlying technology was and still is owned by Joltid, a company founded by Friis and Zennstrom. This wasn't a problem for several years but tensions mounted between the two parties until, finally, Joltid filed a lawsuit earlier this year, accusing eBay of breaching its licensing agreement.
eBay sold a 65-percent stake in Skype despite a pending lawsuit
The suit was thought to put a damper on eBay's plans to spin off Skype in an IPO or sell it to private investors. However, several weeks ago, the company sold a 65-percent stake in Skype for 1.9 billion, putting the VoIP company's valuation at 2.75 billion, very close to what eBay had originally payed for it and much higher than even eBay's own previous estimates. At that time, it looked like the legal issues might have been put behind, as no investor would pay that amount while the company was involved in a lawsuit that threatened to potentially force it to close down its service.
That idea turned out to be wishful thinking, as Skype's founders filed two new suits in just one week through their companies, Joltid and Joost. In the first one, Joltid sued eBay for copyright infringement, though many details were still unclear until news of the second suit. This last one is against Joost’s former Chairman and CEO, Mike Volpi, who is now a partner at Index Ventures. At first, it was believed that Volpi's involvement with the deal was beneficial to the relations between the founders and eBay, but it turns out Volpi's own relation with Friis and Zennstrom might have turned sour a while ago.
Friis and Zennstrom now sue Joost’s former CEO, Mike Volpi
The two are now accusing Volpi of stealing trade secrets, which could allow eBay to circumvent Joltid's IP and replace the component with a web-based one. This functionality is revealed in the peer-to-peer technology's source code that Skype uses and is licensed from Joltid, however, the license didn't grant eBay access to the source. This piece of information is crucial in understanding some of the developments in Skype's recent history. Skype is dependent on the p2p technology licensed from Joltid and, without access to the source code, eBay couldn't just have replaced the component with another one from a third party or with one it developed in-house. It's also the reason why Skype has had such lacking support for developers.
In his position at Joost, which used the same p2p technology as Skype, Volpi had access to the internal workings and Skype's founders accused the former CEO that he used this to provide eBay with information on how to side-step the need for a license from Joltid. While the new developments could potentially hurt the sale, it was revealed that the new Skype buyers agreed to pay $300 million if they backed off on the deal. There are now several possible outcomes and most of them don't bode well for eBay.