Could $2.75 Billion Be Worth Nothing?

Today eBay announced it has sold a majority stake in internet phone company Skype for roughly $2 billion dollars.    The deal values Skype at about $2.75 billion in total.

But is this a two billion dollar deal for nothing?

eBay is in a huge court fight with a company called Joltid.    Joltid happens to be run by the guys who created Skype.

Witness this little noticed section from eBay's July 29th quarterly filing (page 16 of the 62 page .pdf document):

Skype licenses peer-to-peer communication technology from Joltid Limited pursuant to a license agreement between the parties. The parties had been discussing a dispute over the license. In March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties. In particular, Joltid has alleged that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement. Joltid has brought a counterclaim alleging that Skype has repudiated the license agreement, infringed Joltid’s copyright and misused confidential information. On the basis of, among other things, the parties’ mutual dealings since the execution of the license agreement, Skype asked the English High Court for declaratory relief, including findings that Skype is not in breach of the license agreement, that Joltid’s notice of breach and subsequent notice of termination are invalid, and that Joltid has certain indemnity obligations in relation to the U.S. patent proceedings. Trial is currently scheduled for June 2010. Although Skype is confident of its legal position, as with any litigation, there is the possibility of an adverse result if the matter is not resolved through negotiation. Skype has begun to develop alternative software to that licensed through Joltid. However, such software development may not be successful, may result in loss of functionality or customers even if successful, and will in any event be expensive. If Skype was to lose the right to use the Joltid software as the result of the litigation, and if alternative software was not available, Skype would be severely and adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.

In other words, the future of Skype may be in the hands of a British court.

There are a few takeaways from this:

First, the private equity groups buying Skype better have a worst-case scenario plan.

Second, the big winner in this could be a little outfit called Google.  It has its own VoIP technology called Google Voice that has already been perceived as a threat to Skype for other reasons.   This added legal risk around Skype may hasten any moves to Google's technology.

Third, eBay needs better intellectual property attorneys.