Think twice before agreeing that a technology license can ever be revoked

It’s hard to know without more facts, but eBay may be wishing it had insisted on an irrevocability clause in a key Skype license agreement — perhaps with irrevocability being conditioned on paying certain amounts to the licensor.

It seems that, back when eBay bought Skype, it licensed certain core technology from Skype’s founders instead of buying that part outright. That could come back to haunt eBay big time.

Here’s what eBay says on page 15 of its latest quarterly report on SEC Form 10-Q, which it filed earlier this week:

Skype licenses peer-to-peer communication technology from Joltid Limited [controlled by Skype’s founders – DCT] 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 [sic; were] to lose the right to use the Joltid software as the result of the litigation, and if alternative software was [sic; were] 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.

(Emphasis and extra paragraphing added.)

With 20-20 hindsight, this awkward situation might have been avoided by providing that, if Joltid were ever to be paid an aggregate of X dollars or euros or whatever — and X could have been a moving target that increased over time until ‘caught’ — then the license would become irrevocable.

(Hat tip: The Age, via Hacker News)