Skype, the internet telephone service company owned by US-based online auction company eBay, has filed a case in the UK court to resolve a dispute regarding its peer-to-peer (P2P) telephony technology with Joltid Limited, a company run by Skype's founders.

San Jose, California-based eBay is asking the English High Court of Justice in London, to find that Joltid's efforts to terminate the agreement are invalid and that Skype is not in breach of the licensing agreement.

The licensing agreement dispute was previously disclosed by eBay in its most recent 20 February annual report. The report states that Skype terminated a ''standstill'' agreement, allowing either party to take action against the other beginning in March.

Joltid is attempting to terminate the agreement based on allegations that Skype has breached its terms. Skype said that it strongly refutes those allegations and is confident of its legal position.

Skype currently uses Global Index technology from Joltid to make its P2P connections on the back-end and, without this technology, Skype would just become a shell without the software engine to drive it.

Joltid is a company owned by one of the Skype's founders Niklas Zennstrom, which has licensed the Global Index technology to Skype. When Zennstrom sold Skype to eBay for $2.6 billion in September 2005, he retained the licensing rights to the Global Index technology through his company Joltid.

Analysts have questioned the wisdom of eBay as to how they shelled out $2.6 billion to acquire Skype without the technology that drives it.

Joltid has now brought a counterclaim to eBay's court action by alleging that Skype has repudiated the licence agreement, infringed Joltid's copyright misused confidential information and has terminated the licence to use its technology.

"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," the company said.

"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."

Skye in the meanwhile has begun to develop an alternative software to that licensed through Joltid, but warned its investors that 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.

Although eBay had acquired Skype in 2005, it hardly added any significant value for the company and eBay admitted that the multi-billion dollar acquisition was a strategic and financial failure. It decided to spin it out as a separate company via an IPO. (See: eBay plans Skype public offering in 2010)

In April, Skype's founders, Niklas Zennstrom and Janus Friis, made a bid to buy back the company for approximately $1 billion, but eBay board members shot down the sale for the moment, saying that it would not fetch a realistic price in the current global economic situation. (See: eBay looking to sell Skype to original owners: report) Although Skype has said that it had begun to develop an alternative software, experts are cynical about it.

For years, intelligence agencies of the US and the UK, armed with highly advanced supercomputers have not been able to crack the software code of Global Index technology due to its solid encryption.

Its base in Estonia also makes it extremely difficult for the US and the UK to apply intercept laws. At a recent counter-terrorism conference, there were rumours that the National Security Agency, a cryptologic intelligence agency of the US government, has put a bounty for anyone who could develop a foolproof method of eavesdropping on the Skype service.

Apart from intelligence agencies, many telecom operators across the globe will be watching with keen interest at the outcome of the case filed by eBay and the counterclaim filed by Joltid, since these operators will be more than glad to see the demise of Skype.

Skype's software enables the world to communicate either freely or for a few pennies. Millions of individuals and businesses use Skype to make free video and voice calls, send instant messages and share files with other Skype users.

Everyday, people everywhere also use Skype to make low-cost calls to landlines and mobiles. With Skype having 405 million registered users as of end 2008, the revenues of telecom operators globally are greatly affected by the free or low-cost calls.