The Skype Founders' Revenge Against eBay

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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 (co-owned by Netscape's Marc Andreessen) 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.