Skype Founders Sue eBay — Big Surprise

Skype co-founders Niklas Zennstrom and Janus Friis have sued eBay, the company that acquired their Internet telephony startup and turned them into billionaires. The lawsuit was filed by their company Joltid, which controls the core technology that powers Skype, in U.S. district court in Northern California. A similar battle is going on in a court in London.

The lawsuit clouds the agreed-upon $2 billion sale of Skype that values the Internet communications service at $2.75 billion and is being led by by private equity firm Silver Lake Partners as in addition to eBay, it targets Silver Lake, Index Ventures, Andreessen Horowitz and other investors in the deal. And as The New York Times’ Joe Nocera noted in an article earlier this month, eBay is on the hook for half the damages from any legal trouble.

And then, a few months ago, out of the blue, came the $2 billion bid from the Silver Lake consortium. One way it has dealt with the litigation risk is by persuading eBay to assume 50 percent of any losses resulting from the lawsuit. But that still doesn’t mitigate against the possibility that the founders could win the lawsuit — and put their creation, Skype, out of business.

This suit comes as no surprise to either myself or readers of this blog; I’ve been consistently pointing to this elephant in the room. I’ve heard from various sources of mine from across the pond that there is no love lost among eBay management, the Skype founders and some of the investors in the consortium that’s trying to acquire it.

Zennstrom and Friis were rebuffed by eBay management when they expressed interest in buying back Skype. In a clear breakdown of relations, last week, Joost, a company that was co-founded by Zennstrom and Friis, started an inquiry into the activities of its former CEO, Mike Volpi, currently a partner at Index Ventures. That action alone was a sign that the Skype co-founders aren’t going anywhere without a fight.

When eBay bought Skype in 2005, it didn’t acquire Joltid — a major corporate blunder by then-eBay management. Many of the guys who spearheaded the acquisition (and overlooked the fact that they needed to buy the core technology) long ago left the company. Still, as I’ve said before, eBay needs to be held responsible for this clear negligence of its duties.

So back in 2005, eBay paid billions for Skype but didn’t get the crown jewels, aka the technology. I reported this oversight back in 2005. How then-CEO Meg Whitman signed off on the deal, I still can’t understand. I mean, even a lemonade stand owner who can’t tie his shoelaces wouldn’t overlook something as simple as that. And what about the eBay executives who were shepherding that deal?

Photo courtesy of Casey Serin via Flickr

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