Opinion: eBay could innovate to rescue Skype Sale

News that eBay is facing a copyright claim from the founders of Skype's innovative peer-to-peer 'Global Index' (GI) technology has left its proposed sale of the internet calling business on decidedly dodgy ground, writes Nick Wallin, patent attorney at Withers & Rogers LLP. But there could still be a way out for eBay and innovation is the key.

News that eBay is facing a copyright claim from the founders of Skype's innovative peer-to-peer 'Global Index' (GI) technology has left its proposed sale of the internet calling business on decidedly dodgy ground, writes Nick Wallin, patent attorney at Withers & Rogers LLP. But there could still be a way out for eBay and innovation is the key.

In retrospect, questions will undoubtedly be raised about how much eBay really knew or understood about the licence agreement it entered into when it bought Skype in 2005. Skype's former owners - Janus Friis and Niklas Zennstrom - claim that the GI technology used to operate the internet calling service, was owned by Joltid (another company in which they have a major shareholding) and was only available to Skype under the terms of a licence agreement.

According to the legal papers submitted by Joltid in the US last week, the licence agreement stated that Skype was only authorised to use the object code and not the source code for its GI technology. This effectively meant that while Skype was free to use the technology, it was unable to modify or develop it in any way.

Two years after Skype's sale to eBay, Joltid claimed that it had discovered evidence that Skype had been using the source code in order to develop the technology. The company sent letters to eBay, challenging them about the alleged breach and threatening to terminate the licence agreement. The ensuing dispute has led to a number of legal cases, including one that is due to be heard in the UK next year.

eBay's proposed sale of Skype to a group of investors has brought the issue to a head. The founders of the technology want to clarify their position and if possible secure further financial reward for their technology as part of the terms of the sale. While eBay has not yet issued its defence and may yet be shown to have grounds to use the GI source code, they are unlikely to be pleased that the dispute has escalated to a point that could jeopardise the sale.

Despite the bad timing, there is still a way out for eBay and innovation is the key. Intellectual property experts often advise companies on how to design their way around existing patents or copyright-protected inventions. In this case, it is the original GI source code that is in issue. If eBay can independently produce an alternative, they may be in the clear. Another option may be to use existing instant messaging (IM) or voice over internet protocol (VOIP) technologies, such as Google Messenger.

On a broader level, there are also lessons to be learned for all companies considering a sale or acquisition. It is important to make sure that the company's IP portfolio is in place and secure, before going ahead with a corporate transaction. In retrospect, eBay's management team may well have wished that they had taken the time to negotiate comprehensive ownership of Skype's technologies at the point of purchase, when the costs involved would have been considerably lower than today.

For the moment at least, the developers responsible for Skype's highly successful peer-to-peer technology appear to have the upper hand but for how long? eBay's position is unknown and the dispute over the use of the technology's source code is likely to run for some time yet.

This was last published in September 2009

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