Skype Founders Sue eBay, Threatening Its Existence

Skype Founders Sue eBay, Threatening Its Existence

Just when eBay thought it had figured out a way to unload a
majority interest in Skype, along came the Scandinavian founders of the
world’s biggest provider of Internet telephony to sink the $1.9 billion
deal — and perhaps Skype itself.

Niklas Zennstrom and Janus Friis are suing eBay, based in San Jose, Calif., and a consortium of investors that includes private-equity firms Silver Lake, Andreessen Horowitz and the Canada Pension Plan over the breach of a software-licensing agreement.

Zennstrom and Friis, through Swedish-based Joltid, claim the
agreement that permitted eBay to use the peer-to-peer technology that
powers Skype was terminated in March 2009. They have filed suits in Britain
and the U.S. seeking damages of more than $75 million per day.

Wait a second: eBay bought Luxembourg-based Skype from the
Scandinavians for $2.6 billion in 2005 — a lofty sum that made the heads of
many in Silicon Valley spin. Can the founders now really hope to block the
resale of Skype by pulling the technology on which it runs
“People are puzzled about how this happened,” says analyst Stephan Beckert
with Washington-based TeleGeography Research. “One thing I can say: You
don’t want to mess with Zennstrom.”

When Zennstrom, 43, heard earlier this year that eBay wanted to
divest itself of Skype, which had not created the kind of synergies the
online auction house had hoped for, he approached eBay proposing to buy back
the webphone company at a substantial discount. The Swede also made
overtures to private-equity players in an effort to structure a deal.
However, both eBay and private equity gave Zennstrom the brush.

There is no fury like a software engineer scorned. Zennstrom,
according to his critics, has apparently decided that if he can’t have Skype,
nobody will. His court action hinges on the allegation that eBay tinkered
with his proprietary software in a move to replace it, thereby possibly
voiding any future claims the Swede might have against it or Skype. The
Scandis see it differently: “eBay is trying to take from Joltid what it
couldn’t buy,” says London-based spokesman Mark Bolland, noting that the webphone company’s source code is something Zennstrom and Friis have always jealously guarded, never selling it to anyone.

The bad news for consumers is that this legal battle may sap
Skype’s funding or even threaten its existence. Skype has more
than 405 million subscribers who are able to make free and discounted calls around
the globe.
See the top 10 outrageous eBay auctions.
See TIME’s Pictures of the Week.