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High Court ruled against Skype founders on day of settlement

US eBay action scooted over Atlantic

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Skype founders Niklas Zennström and Janus Friis were told their case against Skype-owner eBay had to be conducted in the English courts on the day that they later agreed a compromise with eBay.

Zennström and Friis founded the internet telephony company in 2003 and in 2005 sold it to internet auction firm eBay, which announced this year that it wanted to sell the company.

Zennström and Friis attempted to buy it back but another buyer was found, the Silver Lake Investors Group. Zennström and Friis sued eBay in the US claiming that Skype's use of their company Joltid's software source code within Skype was a breach of copyright. They claimed that Skype had permission to use only a different form of the software.

It had attempted to terminate the agreement for the software's use earlier in the year on the same basis, resulting in a court case in England.

EBay's purchase agreement of Skype, which contained the software agreement, had specified that any disputes should be handled by the English court system. Joltid's copyright suit, though, was filed in California.

The High Court said on 6 November that the dispute resolution clause must stand and that the issue must be settled in the English courts. On the same day, eBay and Zennström and Friis announced that they had settled their dispute out of court.

That deal gave the pair a 14 per cent holding in Skype in return for a cash investment and the right to use the Joltid source code.

Mr Justice Lewison said in his High Court ruling that Joltid's claims in its US copyright infringement case fell within the scope of clause 19.1 of the agreement.

That clause said: "Any claim arising under or relating to this Agreement shall be governed by the internal substantive laws of England and Wales and the parties submit to the exclusive jurisdiction of the English courts".

It is possible for companies to argue about what country's jurisdiction governs an issue by arguing that a jurisdiction is the wrong forum, or a 'forum non conveniens'.

Mr Justice Lewison said, though, that Joltid could not make that argument when a specific clause had been agreed indicating where disputes should be resolved.

"What one might call the standard considerations that arise in arguments about forum non conveniens should be given little weight in the face of an exclusive jurisdiction clause where the parties have chosen the courts of a neutral territory in the context of an agreement with world-wide application," he said. "Otherwise the exclusive jurisdiction clause would be deprived of its intended effect."

The judge said that the fact that neither company had significant operations in the UK strengthened, rather than weakened, the clause.

"The strength of the exclusive jurisdiction clause in the present case is reinforced by a number of considerations [including] … neither Skype Technologies not Joltid has any obvious connection with England and Wales. Consequently they must be taken to have deliberately chosen a neutral forum for the determination of their disputes," he said.

"The licence to use the software was a world-wide licence. Consequently the parties must be taken to have contemplated that a breach of the terms of the licence might take place anywhere in the world, yet they still chose to have their disputes decided in England and Wales. A breach of the terms of the licence might well involve the infringement of local copyright law in a foreign jurisdiction, yet the dispute was to be determined in England and Wales."

Joltid argued that the activities covered by the agreement largely took place in the US and that therefore the court case should take place there, but Mr Justice Lewison disagreed.

"All of these factors were eminently foreseeable when Skype Technologies and Joltid agreed the exclusive jurisdiction clause," he said. "They are no more than the standard considerations that arise in arguments about forum non conveniens. In my judgment they do not (whether individually or collectively) amount to a strong reason for refusing to enforce the exclusive jurisdiction clause by injunction."

In a bid to convince the High Court to allow it to continue with its US proceedings Joltid offered a number of 'undertakings', promising to be bound by certain court rulings and not to take action in relation to some activities.

Mr Justice Lewison rejected those as factors in his decision. "In my judgment these undertakings are no more than an attempt by Joltid to wriggle out of its contract," he said. "I do not consider that they should tip the balance against the grant of an anti-suit injunction."

The Court granted the anti-suit injunction against Joltid's US action. On the same day, the deal with eBay was announced.

"As part of the settlement agreement, Joltid and Skype founders Niklas Zennström and Janus Friis will join the investor group, contributing Joltid software and making a significant capital investment in exchange for a 14 percent stake in Skype," said a Skype statement of 6 November.

See: The ruling

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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