Skype in danger of being shut down

ack in 2005, eBay bought Skype from Joltid. The 2.6 billion dollar price tag did not include the "Global Index P2P software" that Skype is based on. Joltid is trying to cancel the license that Skype uses for this technology. If this happens, the Skype service will be shut down permanently.

Skype is the largest internet telephony software worldwide - as well as the worlds largest international voice carrier. The 2.6 billion dollar sale did not include Joltid's core piece of P2P code called "Global Index". Global Index is the P2P protocol that Skype uses as it's core communication technology.

In a recent quarterly report, filed with the US Securities and Exchange Commission, the following was announced:

"Skype licenses peer-to-peer communication technology from Joltid Limited pursuant to a license agreement between the parties. The parties had been discussing a dispute over the license. In March 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited. Following the filing of the claim, Joltid purported to terminate the license agreement between the parties.

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 U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement. Joltid has brought a counterclaim alleging that Skype has repudiated the license agreement, infringed Joltid's copyright and misused confidential information. On the basis of, among other things, the parties' mutual dealings since the execution of the license agreement, Skype asked the English High Court for declaratory relief, including findings that Skype is not in breach of the license agreement, that Joltid's notice of breach and subsequent notice of termination are invalid, and that Joltid has certain indemnity obligations in relation to the U.S. patent proceedings.

Trial is currently scheduled for June 2010. 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. 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. "

As pointed out in the quarterly report, Skype is currently attempting to develop an alternative protocol to replace the Global Index but the fast approaching court battle in June 2010, it does not seem like Skype will have enough time and the service may be shut down entirely.

The shutdown of Skype would affect at least 480 million users, more than that of Facebook.