eBay filed a concern with SEC – A legal dispute between the Skype unit and Joltid – the organisation from which Skype was purchased. If nothing is done, the entire Skype service could die.
Skype is the largest carrier of international telephony in the world (around 8% of global traffic). though Skype provides alot of free calls, but an increasing number of customers are using the paid Skype Out service – amounting to 8.4 billion minutes alone in 2008.
On page 15 of eBay’s quarterly SEC filing, it wrote the following –
(Don’t worry if you don’t understand this, I’ve explained it in the later section)
“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. … 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… 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.”
Ok, I didn’t understand this, can you explain it in simple language?
To make it simple, Millions of internet users who use Skype could be forced to find other ways to makephone calls after parent company eBay said it did not own the underlying technology that powers the service, prompting fears of a shutdown.
Ebay paid a total of $3.1billion for the telephone service between 2005 and 2007 and is now locked in a legal battle with the technology’s owner, Joltid, a company owned by Skype’s founders. That may make it impossible for eBay to follow its plan to float Skype on the stock market next year – and give one of Skype’s creators, Niklas Zennström, the upper hand in any negotiations. Zennström has been angling to buy the company back.
Skype is a big money-earner for eBay. The stats of minutes given in start of blog is the proof.
It has more than 480 million registered users and revenues of $170m for the last quarter. It does not need telephony systems as people’s own computers route traffic over the internet; its only significant costs will be payments to telephone operators where calls exit the internet, for which Skype’s customers pay.
eBay says that it filed a claim against Joltid in the English high court in March, and that Joltid, which owns the key technologies for Skype, then “purported to terminate the licence agreement”. Without the licence, Skype may be worthless to eBay because it will be unable to run it legally – or might have to pay swingeing licence fees to keep it going.
However, eBay’s legal counsel insisted that “our plans to separate Skype have not changed”. There was no other comment from eBay on the litigation.
The case has arisen because Joltid, set up in 2001 by Zennström and Janus Friis – who both went on to found Skype in 2003 – licenses its software to Skype, which enables the company to build its huge internet telephony system, which connects millions of computers. Whereas most systems only connect a couple of computers, Skype’s distributes the call among thousands of machines, making it extremely robust.
Joltid alleges that Skype “should not possess, use or modify certain software source code” and that eBay has disclosed some of that code in US patent cases following US court orders. It is seeking to revoke Skype’s licence on the basis of copyright infringement and misuse of confidential information.
There are two interesting outcomes from this. Firstly, unless a solution is negotiated very quickly, the planned IPO for the first half of next year will have to be placed on hold (or even killed off entirely).
Secondly, if the June 2010 case goes against eBay, a lot of people will have to return to the POTS to carry their calls or look for an alternative.
Rise of the Fallen – Other Providers
Right now, It’s the best time for other VOIP providers to showcase their features and outrun Skype. This is the best time when users will not mind switching to something that has a more reliable future.
Google Voice, which serves free internal calls within US, might take the best advantage of the scenario. Earlier we articulated how Google Voice can kill Skype, but now it’s much more easier than what it use to be then.
The Market is open, competition awaits a good opportunity from alternate providers.