Skype -v- Joltid: Ebay did their IPR due diligence?

As the VoIP peer-to-peer telecommunications service Skype is almost universal (currently almost 13m users online at the time of this post), there has been quite a bit of excitement about the recent Securities and Exchange Commission quarterly filings made by Ebay, Inc, the owners of Skype Technologies SA.  In the April 2009 and July 2009 filings Ebay has reported that it is in dispute with Joltid Limited, the original sellers of Skype to Ebay for $2.6billion.

In a smart bit of forum shopping, Skype has brought a case against Joltid in the English High Court, with Joltid making a counterclaim that alleges, amongst other things, that the licence agreement between the parties has been terminated.  Continued possession and use of Joltid’s Global Index peer-to-peer software technology by Skype would therefore be an infringement of Joltid’s copyright in that software.  The SEC filings describe how a successful counterclaim by Joltid could ultimately shut down Skype, unless Ebay/Skype can develop alternative software before the outcome of the court case.  The case is reported to be listed for a hearing in June 2010.

Although there is a lot of comment on the case in the public domain and on the Internet, it is not entirely clear what the cause of action is for Skype’s claim in the High Court.  It appears that Skype has got in first at the High Court, seeking declaratory relief that it is not in breach of its software licence with Joltid.  From the counterclaim, it appears that Joltid believes that Skype has breached the software licence by disclosing some of the Global Index source code in defence of various patent actions in the US, including by order of US courts.  Until the software licence is disclosed in the public domain, however, the actual cause will remain a subject of speculation.

Although there may be some commercial manoeuvring going on here, given that Joltid are reported to be looking to buy Skype back from Ebay, this does suggest an obvious lesson.  When buying a company that has a successful product or service that is highly dependent upon a key technology or other intellectual property, it serves to do a thorough job on the intellectual property rights’ due diligence.  If the relevant intellectual property rights’ licences are not irrevocable, the buyer should be absolutely clear about the licensor’s rights to terminate the licences, and the effect on the business if any licence were terminated, before completion of the sale.

One would hope that Ebay did a thorough examination of the software licensing between Skype and Joltid, for example, so that the reports of a purported termination of the Jolitd licence in their SEC filings are merely precautionary.

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