The Work

September 17, 2009 5:32 PM

Skype Founders Accuse eBay of Using Technology Illegally

Posted by Zach Lowe

The two men who founded Skype and then sold it to eBay have filed a federal suit accusing eBay of continuing to use their patented peer-to-peer technology after they terminated the companies' right to do so in March.

The founders, through their company Joltid, retained Hennigan Bennett & Dorman, the same firm that advised them in the protracted infringement litigation over their first invention, file-sharing site Kazaa.

As The New York Times notes today, the suit comes a week after eBay sold a majority stake in Skype to a consortium of private equity groups. (Dewey & LeBoeuf advised eBay in that deal; Sullivan & Cromwell advised the buyers.)

The general partner of one of those private equity groups--Mike Volpi of Index Ventures--used to be the chief executive of Joost, another entity owned by the Skype founders, according to the NYT and The Wall Street Journal.

Volpi's involvement with the Skype buy led to speculation that he had inside information that an infringement lawsuit over Skype's peer-to-peer technology wouldn't impact the company's continuing viability. (Or else, why buy it? Joe Nocera asks in the NYT)

Skype founders Niklas Zennstrom and Janus Friis had already sued Skype and eBay in the U.K. for breaking the licensing agreement that allowed eBay to operate Skype using their proprietary peer-to-peer technology that allows users to talk through their computers without the aid of a massive data center. (The codes behind that technology were not included in the original Skype sale to eBay in 2005; Zennstrom and Friis wanted to keep them.)

Zennstrom and Friis have alleged that, since 2007, eBay has breached the licensing agreement in a variety of ways, including by sharing the codes with third parties and modifying them without permission. The U.K. case is still pending.

The suit Zennstrom and Friis filed in federal district court in California on Wednesday is a little different. In addition to eBay, it names all of the investors who purchased eBay from Skype, claiming their merger agreement with eBay in effect requires eBay to continue operating Skype without permission. (The agreement includes a closing condition requiring that Skype continue to be publicly available for consumers.)

The suit also says Zennstrom and Friis terminated the peer-to-peer licensing agreement with eBay in March, and that eBay has continued to make Skype available to the public anyway. The damages from such infringement may amount to as much as $75 million per day, the suit says.

Roderick Dorman, one of the lawyers representing Zennstrom, Friis and Joltid, declined to comment. Lawyers for Dewey and S&C did not immediately return messages seeking comment on the suit's impact on the Skype deal announced last week.

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