August 2009
eBay Sinks in its Attempt to Float Skype
eBay’s plan to float Skype, the business it bought in 2005 for $3.1 billion has run into difficulties after the revelation that eBay does not own the underlying technology used to power the Skype website. In order to try and resolve matters eBay has launched a litigation action against the company who are claiming they own the underlying technology. Resolution of the situation is some way off. Although on a grand scale given the price tag in question, this case highlights the problems businesses encounter when buying in technology without conducting thorough due diligence as well as putting in place appropriate agreements.
How did the eBay Debacle happen?
The technology that powers Skype was developed by one of Skye’s founders, Swedish software developer Niklas Zennström. After the sale, Zennstrom retained the rights in the technology only having granted Skype a licence to use it. When Skype was sold to eBay in 2005 Zennstrom stayed on as CEO. However he left the company in 2007 and set up a new company, Joltid. Zennstrom then passed over the intellectual property rights in the said technology to the new company.
eBay filed a claim against the new company Joltid in the English High Court in March 2009 in an attempt to force them to hand over the rights. Joltid responded by purporting to terminate its agreement with Skype allowing it to use the software.
In a statement released to the US Securities and Exchange Commission (SEC) late last week in advance of the proposed flotation eBay said:
“Although Skype has contracts in place with its third-party technology providers, there can be no assurance that the licensed technology or other technology that we may seek to license in the future will continue to be available on commercially reasonable terms, or at all.”
The situation is unfortunate but avoidable.
Rights In Your Website
This eBay example highlights the need for care when dealing with rights in software. Generally software in the form of written code is protected by copyright. In terms of the underlying copyright works the rule is that the rights will be owned by the person who wrote the code, unless this work is done in-house by an employee. The only safe way of clarifying who owns the rights is to have an agreement in writing.
Dividing out rights in websites can be quite tricky and is sometimes a contentious point. One approach is to split the website into two with a “back end” and “front end”. The “back end” refers to the underlying code or functionality of the site. If the developer has developed bespoke software which makes the functionality unique and gives a website a competitive advantage then it is good practice to get an assignment of the rights or an exclusive licence of the bespoke software.
However it is important to take a realistic view, if the software used is either open source or off-the-shelf or some other generic software then the developer will usually only be able to grant a non-exclusive licence and this is sometimes all you will need. In any event these terms should be clarified so that you are clear what the licence covers. The “front end” usually relates to the look and feel of the site which should be something that is unique to each website. The developer should generally agree to assign the rights in the front end of site. Finally, if you are buying a company and require control of the technology you need to make sure you are getting an outright assignment of all the rights.
At Briffa we can help you put together web development agreements and software agreements so that you can make sure you don’t get caught like eBay did.
For more information contact info@briffa.com.