Legal spat pushes Ebay to develop new base for Skype

eBay warns Skype could be shutdown if it loses in court and no alternative is available

Online auction giant eBay has begun developing an alternative to the P2P technology used by Skype as a licensing dispute drags on and threatens to close the popular IP telephony service.

eBay bought Skype in 2005 for about $US2.6 billion but that deal didn't include the peer-to-peer networking technology on which it runs. That technology is owned by a company called Joltid and licensed to Skype but the two sides have fallen out over the licensing agreement.

Earlier this year Skype asked England's High Court to resolve the dispute, according to Ebay. After that Joltid "purported" to terminate the license agreement, it said.

"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 US patent cases pursuant to orders from US courts, Skype has breached the license agreement," eBay said in the 10Q filing.

A counterclaim to Skype followed, pushing Skype to ask the English court to find that it was not in breach of the license and that Joltid's termination is invalid. The legal mess is set to be heard by the court in June 2010.

In the meantime, eBay said it has begun developing an alternative to the technology at the center of the dispute with Joltid.

"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," the company said. "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," it wrote.

Without a clearer understanding of the dispute between the two companies it's impossible to tell just how realistic the possible of a shutdown of Skype could be or whether its just been inserted into the regulatory filing to cover eBay's legal bases.

Spokespersons for both companies were not immediately available to comment.

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