Technology

Skype Scrambles to Swap Disputed Code


Skype is trying to develop new peer-to-peer technology to replace the code it currently uses, due to an ongoing legal battle with the founders of the popular internet telephony service.

Skype's owner, eBay (EBAY), revealed the software-development initiative in a filing on Tuesday last week with the US Securities and Exchange Commission (SEC), but warned that it may not be successful.

eBay bought Skype for $2.6bn in 2005 but that purchase did not include the peer-to-peer technology at the heart of Skype's functionality. Instead, Skype founders Niklas Zennström and Janus Friis hung onto the technology via their new company, Joltid, which then licensed it to Skype. A legal dispute over licensing terms arose earlier this year between Skype and Joltid, and Skype filed a claim against Joltid in the English high court in March, according to SEC filings by eBay. In response, Joltid filed a countersuit, saying Skype had no right to use or modify certain code and that it had breached the licence agreement, and said it was terminating the agreement as a result. The high court is scheduled to hear arguments in the trial in June 2010.

eBay admitted in an April filing with the SEC that "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.

"In such event, Skype would be adversely affected and the continued operation of Skype's business as currently conducted would likely not be possible."

On 28 July, a new SEC filing from eBay stated that "Skype has begun to develop alternative software to that licensed through Joltid".

The filing contained warnings, however, that the new software development would be expensive, possibly unsuccessful, and "may result in loss of functionality or customers, even if successful".

The dispute threatens eBay's intention to launch Skype as a separate, publicly listed company next year. Skype has never emerged as a serious money-spinner for eBay, despite the vast amount paid for it by the ecommerce giant, and eBay had to take a $900m writedown on Skype in late 2007.

Skype said in a statement on Friday that the spin-off plans "have not changed", but the company will not comment on the ongoing litigation beyond the information included in the SEC filing.
Meyer is a senior writer for Gigaom.

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