Skype founders drop suits
06.11.2009, 17:04
The founders of Skype agreed to join the investor group buying the Internet-calling service from EBay Inc. and to drop litigation that had threatened to shut down the company, Bloomberg reports.
Niklas Zennstrom and Janus Friis, who sold Skype to EBay in 2005, and their company Joltid Ltd. will take a 14 percent stake in the company alongside a group led by private-equity firm Silver Lake, San Jose, California-based EBay said today in a statement. They also will drop lawsuits filed against Skype and the investor group in London, California and Delaware.
The settlement resolves questions about how Skype would operate in the future. The founders, who owned the underlying software code to the Web-calling service, had accused EBay of breaking a licensing deal and sued the investor group in September. EBay said in July it was trying to develop alternative software for Skype. The settlement removes a key distraction for EBay Chief Executive Officer John Donahoe.
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“It’s good to get that overhang out of the way so management won’t have to spend more time on it,” said Brian Flanagan, a money manager at Thrivent Mutual Funds in Minneapolis, whose fund holds 540,000 EBay shares.
Index Ventures, which helped orchestrate the deal, will no longer be part of the investor group. Skype will own the service’s software code.
The fight for Skype has been building for more than a year. Soon after Donahoe became EBay’s CEO last year, he said he would evaluate whether Skype was a good fit for the company. In April, EBay announced plans to hold an initial public offering for the phone service, saying it had little to do with the online retailer’s other businesses.
About that time, the battle escalated over the software code that the founders licensed to Skype through their company Joltid Ltd. The pair had accused Skype of altering the code, and Skype sued them in a London court. Skype’s lawyers told the judge that if Joltid’s claims weren’t invalidated, it would be “devastating” to Skype and it might be forced to shut down.
In September, an investor group led by Silver Lake agreed to buy Skype for about $2 billion. Zennstrom and Friis struck back, filing lawsuits in federal courts in California and Delaware against the group and accusing one member, Michelangelo Volpi of Index Ventures, of stealing company secrets while he was CEO of their Internet-video company Joost NV.
Zennstrom and Friis, who founded Skype in 2003, also created the Kazaa music file-sharing system, which ran on the same software that powers Skype.
EBay, under former CEO Meg Whitman, bought Skype with the hope that buyers and sellers would use the phone service to communicate about items for sale. EBay paid $2.6 billion for the company and wrote down its value to $1.2 billion in 2007.
Skype is EBay’s second-most-profitable unit, Donahoe said in an October interview. Its revenue grew 29 percent in the third quarter to $185.2 million and now accounts for more than 8 percent of EBay’s sales. Donahoe said he expects the buyout to close this month.
With 520 million users, Skype handles more than 8 percent of all cross-border voice traffic, making it the top provider of international calls, according to Washington-based research firm Telegeography.
Skype users can call each other for free from computers and mobile phones. Skype makes money when customers use the service to call regular phones. Customers also pay for voice-mail, call- forwarding and text-messaging services.