Will eBay's new investors escape the Kazaa curse?
Under the covers, question still lurk, The two controversial Skype founders, Niklas Zennstrom and Janus Friis, are embroiled in a bitter legal dispute with eBay, which originally purchased the company from the duo for $2.6 billion. Friis and Zennstrom, who once avoided U.S. soil to avoid litigation with the recording industry, claim that eBay does not own the software the powers the Skype network. Rather, they say that the software IP is merely licensed to eBay by Joltid, an entity the duo still controls. eBay's CEO John Donohoe said today that the new Skype deal does not resolve the legal dispute, according to Dow Jones.
Analysts are bullish, saying the deal frees Skype to operate on its own outside the suffocating confines of eBay. They also cheered the return for eBay shareholders. The deal valued the Skype unit at $2.75 billion, significantly more than the $2 billion valuation pegged to Skype several months ago. Surging revenues at Skype surely had something to do with this -- it was the fastest growing unit of eBay and on track to do $600 million in revenues this year.
But Skype is no ordinary acquisition. eBay had been tangling with the Skype founders (Janus Friis and Niklas Zennstrom) over who owned the software IP that powers Skype. The two founders had placed the ownership of this software in a separate company called Joltid, much to the chagrin of eBay. How the Skype guys pulled this off without raising massive red flags on eBay's legal team is unclear. Somehow they did.
And now it's left to Silver Lake and company to unravel that legal Gordian knot, appease the two founders and somehow wrangle a perpetual license or something similar for Skype. Such an insurance policy would be a mandatory if Silver Lake and other investers are going to be able to sell Skype off, which certainly is their ultimate goal. Friis and Zennstrom have proven particularly adept at avoiding such commitments.
With their previous venture, the peer-to-peer file-swapping venture KaZaA, Zennstrom and Friis ended up shutting down the network under legal pressure but only after they sold off some or all of the company's technology to a team operating out of the dodgy South Pacific tax haven of Vanuatu. Such a pedigree makes it hard for an M&A lawyer sitting across the table from these guys to sleep at night. But the value of Skype is so huge and growing so rapidly that the big guns probably figure that dealing with the founders -- and they will have to deal with them whether they want to or not -- is worth the risk.