Online auction giant eBay announced Friday that its sale of a controlling interest in its Skype unit will proceed, following the settlement of litigation over the proposed transaction.
The settlement restructures the deal with an investor group led by Silver Lake and puts an end to a dispute with software maker Joltid over the licensing of software that underlies Skype's Internet telephony service.
In addition, the settlement brings Skype and Joltid founders Niklas Zennström and Janus Friis, into the investor group. The duo will take a 14 percent stake in Skype in exchange for contributing Joltid software and a "significant capital investment."
Silver Lake and other investors will now hold 56 percent of Skype, and eBay will retain 30 percent. Those other investors include the venture capital firm Andreessen Horowitz--started by Marc Andreessen, the man behind the early Web browser Netscape--and the Canada Pension Plan Investment Board.
Venture capital firm Index Ventures, which had been embroiled in the legal action, has withdrawn from participation in the investor group.
As in the initial agreement, eBay will receive approximately $1.9 billion in cash when the sale is completed, along with a note from the buyer in the principal amount of $125 million.
The deal, which eBay says puts Skype's value at $2.75 billion, is expected to close during the current quarter.
Under the settlement agreement, which involves the Silver Lake investor group, Joltid, and online video company Joost, Skype will have ownership over all software previously licensed from Joltid. All related litigation now pending against the investor group and eBay will cease at the closing of the acquisition.
Zennström and Friis had sold Skype to eBay for $2.6 billion in 2006, but they had also retained the rights to Skype's peer-to-peer technology via Joltid, a separate company that they had also founded. In its lawsuit filed in September of this year, Joltid raised charges of copyright infringement, alleging that Skype had acquired unauthorized versions of the source code, made unauthorized modifications, and disclosed the software to third persons.
Also in September, Joost--yet another company started by Zennström and Friis--filed a lawsuit against former Joost CEO Mike Volpi, who two months earlier had become partner at Index Ventures, which also was named in the lawsuit. Joost claimed that Volpi, who had done a stint on Skype's board of directors, had used confidential information as part of Index Ventures' participation in the Silver Lake-led effort to buy a majority share in Skype.
In the third quarter, Skype contributed $185 million in revenue to eBay, up nearly 30 percent from the year-earlier period. It has more than 520 million registered users.
Update at 8:10 a.m. PST: More details of the settlement have been added.
Mike Volpi's battle with his former employer Joost is now headed to court.
Joost announced on Friday that it has filed a lawsuit against Volpi, alleging that the former CEO used trade secrets and other confidential information in a bid to acquire a majority share in Skype from eBay.
The lawsuit comes just days after Joost relieved Volpi of his duties as chairman and a member of the board, saying that it was investigating his actions while he was chairman.
The fracas has its roots in the complicated relationship between online video provider Joost and VoIP provider Skype.
Joost was launched in 2006 by Janus Friis and Niklas Zennstrom, who also co-founded Skype. Volpi met and befriended the pair after serving on Skype's board of directors.
Once considered a contender for CEO at his former company Cisco, Volpi was tapped by Friis and Zennstrom to become CEO of Joost in June of 2007.
After a two-year stint, Volpi left Joost this past July to take a position as a partner at the venture capital firm Index Ventures. This same firm was part of a group that made a deal to buy a 65 percent share of Skype from eBay.
The question of Skype ownership between eBay and Friis and Zennstrom has been a dicey one. Though they sold Skype to eBay in 2006, Friis and Zennstrom kept certain rights via a company they formed called Joltid, and claim they still own the core technology and source code behind Skype. A licensing issue between the two companies triggered a suit that's set to hit a U.K. courtroom next summer. And a separate copyright suit was filed by Joltid this week in Northern California alleging Joltid's technology is being infringed on by Skype users "in the United States at least 100,000 times each day."
Joost's lawsuit filed against both Volpi and Index Ventures alleges that Volpi accessed and used confidential information while at Joost to help his group's bid for Skype. It alleges breach of fiduciary duty against Volpi and Index Ventures, aiding and abetting breach of fiduciary duty against Index, interference with prospective business advantage, misappropriation of trade secrets, breach of contract against Index, breach of confidence, and civil conspiracy.
Joost is looking for an injunction requiring Volpi and Index Ventures to return all confidential documents and files that were allegedly taken from Joost. The suit also is seeking to prevent both defendants from using the alleged misappropriated trade secrets.
Among the specific claims in the suit:
"This action arises out of the acts of a faithless fiduciary, who has taken advantage of the trust and confidence placed in him to steal confidential, highly proprietary information relating to an extremely popular Internet-based technology...Using that misappropriated information and in utter disregard for his fiduciary obligations, Volpi, acting in concert with other participants, put together a successful bid for Skype that has shocked the investment community."
"Numerous sophisticated strategic bidders (including, among others, Google and Microsoft) who initially expressed an interest in Skype could not get comfortable proceeding with formal bids. The reluctance of these sophisticated parties is hardly surprising given that intellectual property that is essential to Skype's business currently hangs under a cloud of litigation. Yet somehow the successful bidder, led by Volpi, was able to get comfortable with the enormous risks of proceeding with a Skype transaction. That comfort level could have been obtained only with knowledge of and an intent to use confidential information that had been misappropriated by Volpi..."
A phone call placed to Index Ventures for comment was not immediately returned.
Joost was launched more than two years as another portal for online videos but has struggled to gain a foothold in the market against competitors such as YouTube and Hulu.
Note: CBS, which owns CNET News, is investor in Joost.
The peer-to-peer magic that helped Kazaa and Skype dazzle consumers and disrupt the music and telecom industries has failed to produce the same kind of success with Web video.
Mike Volpi has stepped down as CEO but will remain chairman.
(Credit: CNET TV)Joost, the third major creation by Niklas Zennström and Janus Friis, the duo that also founded Kazaa and Skype, announced Tuesday that it will dump its consumer-video service and will now focus on building "white label" video platforms for "cable and satellite providers, broadcasters and video aggregators."
The move marks the end of Joost as a YouTube and Hulu competitor and also closes the book on the attempt to resuscitate the company overseen by former Cisco executive Mike Volpi. Joost announced that Volpi has stepped aside as CEO but will remain chairman.
Joost had signaled that it might be ready to throw in the towel. In April, Sony Pictures decided to pull the studio's content off Joost. Soon after, CNET News reported the company was shopping itself to cable providers, including Time Warner Cable.
Last week came word out of London that Volpi was up for the CEO job with a British public service network.
The truth is Joost never gained enough steam to challenge YouTube and Hulu. Its early missteps included requiring users to download a software client and then, despite boasting Viacom as one of its backers, failing to sign the kind of premium content that made Hulu a force.
The company, which had been heavily hyped, largely on the reputation of its founders, eventually launched a browser-based video service. By then, however, Hulu offered lots of top TV shows and movies in high-quality video.
Joost's opportunity had passed.
Microsoft has also "scaled back" its own consumer video service, Soapbox, according to a story published earlier this month by my colleague Ina Fried.
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