Skype SA has not had the happiest of holidays.
Last week, the company that provides a free Web-based telephone service saw millions of its users unable to access their Skype accounts. The network failure came just a few days before Christmas, a busy time of year for calling loved ones.
And last Tuesday, one day before that system outage, Skype was hit with a patent lawsuit claiming that the technology the Luxembourg-based company uses to make its service run violates a patent held by a company called Gradient Enterprises Inc., based in Rochester, N.Y.
In the complaint filed with a New York court on Dec. 21, Gradient claims that Skype "infringe[s]the … patent through their peer-to-peer methods and systems for Voice over Internet Protocol (VoIP) communications," which has "damaged" its business.
It all comes at a bad time for Skype, which has been preparing to go public. The company is owned by a group of investors including eBay Inc., its founders, and the Canada Pension Plan Investment Board. It filed for an initial public offering in August.
Skype offers free calls that travel over Internet connections rather than a traditional phone network. Calls between users are free on their computers or through applications downloaded to their mobile phones; outgoing calls to regular phones, including long-distance calls, are made at discounted rates.
Skype's business model as a public company will depend on converting free users into pay-as-you-go customers or more permanent subscribers. But issues that bring into question the reliability of the service - such as last week's outage - endanger that plan, said Kevin Restivo, a senior analyst with International Data Corp.
"A quality-of-service issue really gives the opportunity for competitors to take advantage and plug their services at the expense of Skype," Mr. Restivo said. "Google is marketing as part of its Web-services empire, [Gmail Call]a variant of Google Voice, which allows people to call for free over the Internet. Giving competitors an opportunity to migrate people is not good for a business like Skype."
Now Skype faces the added complication of a patent lawsuit. Gradient Enterprises owns a complex technology for a "non-central and mobile" system that allows a network to function, according to the patent documents. The patent was filed in July, 2004, and issued in February, 2010. Skype was founded in 2003.
Gradient claims Skype has used this technology in its Internet calling system. If it is able to prove that, Gradient has asked for compensation and for an injunction preventing other services from using the system it developed.
Lawsuits of this kind in the tech industry are common, and can be costly for a growing company. Skype did not respond to a request for comment.
"People … will oftentimes try to piggyback on a company's potential success, and potentially slow them down, with a patent lawsuit," Mr. Restivo said. "I'd guess the timing is not coincidental."
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HOW SKYPE WORKS
Skype's founders came from the world of peer-to-peer websites, after founding Kazaa in 2001. And in some ways, Skype works on a similar system to those used to download music.
By signing into the network, your computer can act as a "supernode," a connection point. For file-sharing services like Kazaa, that can mean hosting a piece of music on your computer to share with other users so that songs don't all have to be hosted on one big central server. For Skype, it means some users' machines pitch in to help route calls on a big global network for free.
"It's the basic concept of, if you're inside your house and you want to talk to your neighbour, and you don't want to leave the house, you need someone on the outside who can knock on their door. That's what a supernode is," said Dan York, the chair of the Voice over IP Security Alliance (VOIPSA), an education and marketing group for the Internet-calling industry.
That connection gets less smooth when supernodes become unavailable. Skype's "blogger-in-chief" Peter Parkes explained on the company's blog last Wednesday that many "were taken offline by a problem". Skype has not yet explained the source of the problem, though some have suggested that updates of the service could be at fault.
The disconnected nodes were the source of Skype's technical difficulties last week, and nodes are also now at the heart of its legal troubles.
Gradient Enterprises holds a patent for a system that "distribut[es]control of a network throughout the nodes … such as computer systems and other programmable machines, themselves with a mobile agent," according to U.S. patent documents.
"Node" is a common term in information technology circles. Gradient will now have to show the court that Skype's network of supernodes violates its patented system.