Skype Founders Pull Out the Stops

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Technical Obstacles for New Owners

Though the legal contest will be hard fought, it's not likely to derail the deal. If Silver Lake and its fellow investors walk, they'd have to pay eBay $300 million. For its part, eBay has agreed to take on 50% of any potential damages from litigation. And Skype's founders had alleged copyright infringement before the deal was clinched, so it's not like the bidders weren't aware of the potential legal hurdles.

But Skype's new owners also face technological obstacles. Since the 2005 acquisition, eBay licensed Skype's core technology from Joltid, which terminated the license in March. Since then, eBay has been scrambling to devise a workaround that would let Skype quit using Joltid's technology altogether. A viable workaround would be an important lever in negotiations with Joltid, which says it's suffering damages of $75 million a day. "If they can do a complete workaround, then things become materially different," says Randolf Katz, partner at law firm Baker & Hostetler.

With his deep technology expertise, Volpi may be instrumental in developing different approaches to calling. "Clearly, there are other services like Skype out there," says Joyce Kim, chief marketing officer at Web-calling technology company Global IP Solutions, whose customers include networking giant Cisco Systems (CSCO), where Volpi used to be chief strategy officer. "Certainly, there are other ways to do what they are doing."

Settlement Is Possible

Skype could even modify its service so it works similarly to Web-calling rival Vonage (VG), experts say. It could develop the technology in-house, or even buy a Web-calling startup, such as damaka. Volpi left his CEO position at Joost to join Index Ventures in June. While at Cisco, he helped the networking giant acquire more than 70 companies. "Skype isn't out of options," says Jeffrey Lindsay, an analyst at Sanford C. Bernstein. "It's not a hopeless case by any means."

What's more, Skype will have months more to finesse the workaround. The lawsuit made public Sept. 16 "is unlikely to get to trial until a year or two from now," says Rod Dorman, a partner at Hennigan, Bennett & Dorman, which represents Joltid. The lawsuit against Volpi and Index is tricky, and could take time as well, as proving breach of fiduciary duty and resulting damages is typically more difficult than proving copyright infringement, Katz says. The parties could still settle before then; one possibility is that Skype may be offered an option to acquire Joltid, with the founders getting a piece of the equity in Skype in exchange.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore. With Tom Giles in San Francisco and Douglas MacMillan in New York

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