eBay: Still Clouds over Skype IPO

Despite a few ominous signals, eBay Inc. (NASDAQ:EBAY) insists that it's moving full-steam ahead with its spinoff of Internet phone service Skype.

The online auctioneer felt compelled to issue a statement saying that its plans to spin off the unit, which it acquired in 2005 for $2.6 billion, are still on track following some interesting details in its quarterly report filed with the Securities and Exchange Commission this week.

The filing outlined a legal dispute with Joltid Ltd., the software company that Skype licenses its peer-to-peer communication technology from.

Joltid, which is controlled by Skype co-founders Niklas Zennstrom and Janus Friis, claims Skype has breached the licensing agreement between the companies. EBay in its filing said that Skype is confident it's in the right but that the failure to resolve the issue could create problems.

To that end, Skype has begun internal development of alternative software to Joltid's.

"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," eBay said.

"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."

Good thing eBay is in no big hurry to complete the spinoff. Unless they reach some sort of settlement, the web of claims and counterclaims between Skype and Joltid isn't set to be cleared up until the case goes to trial next summer in the English High Court of Justice. - Olaf de Senerpont Domis

Comments

[Patricia013:]

Skype is far from being Ebay's only problem. ;-)

Jul 31 03:20 PM

[aja8888:]

The problem with Skype is it is not worth anything. It's a free service with virtually no revenue stream.

Jul 31 08:13 PM

[redbaron:]

If eBay writes the Skype software like they write the software changes on the auction/store site, it will take months to straighten out the resulting mess, and the site won't function properly in the meantime.

Jul 31 10:00 PM

[Raj Sargule:]

Wonder how could eBay's claims that Skype business will be affected regardless of an alternative help them well with their plans to spin off Skype. With trial date set for June 2010, one would not expect a spinoff at least for a year. Guess eBay is confident that it will win this dispute. With 480 million Skype users all over the world, there is a lot to lose.

Jul 31 11:07 PM

[tedster98:]

skype was one of ebays most profitable sectors. Ebay just keep making stupid mistakes after more stupid mistakes. The management is totally incompetent and needs to be fired. They have already lost most sellers with their revised feedback policy - a disaster.

Aug 01 08:59 AM

[Zachary Sch...:]

Interesting to see eBay as the feature story on barron's this weekend. Some speculation that the spinoff would unlock value but no significant discussion of the legal issue... Seems like this would be pretty relevant for the discussion!

Aug 01 12:04 PM

[Philip Cohen:]

The people running eBay are a lot of unscrupulous, disingenuous, incompetent buffoons. For anyone who uses eBay, a detailed case study of shill bidding and the abuse of eBay’s proxy bidding system—all exacerbated by eBay’s introduction of “hidden bidders”—plus a detailed general criticism of eBay’s “clunky” auction platform and policies, at
www.auctionbytes.com/f...

Aug 01 03:31 PM

[eBay +++:]

How can Joltid complain? They were overpaid, then they tried to buy the business back for much cheaper when the economic Market dropped. They offered eBay much less than they were paid, then when they were denied they pull this Lawsuit crap to try to force eBay's hand. Unless they plan to bribe the Court or happen to be related to the Judge this goes nowhere. I see the Judge falling off his chair laughing at this case. And wait till he hears how much the blew on Jooce. LOL

Aug 02 09:07 PM