UPDATE 1-Skype says China JV partner stores text messages

(Recasts first paragraph, adds CEO quote paragraphs 12, 13)

NEW YORK, Oct 2 (Reuters) - Skype, eBay Inc's (EBAY.O) Web communications unit, said on Thursday that TOM Online Inc, majority owners of Skype's Chinese venture TOM-Skype, had been monitoring and storing some of its users' text messages without Skype's knowledge.

Skype apologized after a report revealed that the Web service monitors text chats with politically sensitive keywords and stores them along with millions of personal user records on computers that could be easily accessed by anybody, including the Chinese government.

Jennifer Caukin, a spokeswoman for Skype, minority owner of TOM-Skype, admitted to the privacy breach in the TOM Online servers and said it had now been fixed.

However, she said that Skype needed to have further discussions with TOM after it found out that the venture had changed privacy policies without Skype's consent or knowledge in order to store certain user messages.

Caukin said it was not a surprise that "the Chinese government might be monitoring communication in and out of the country."

"Nevertheless, we are concerned to hear about security issues brought to our attention and confirm that TOM was able to fix the flaw." she said, adding that "changes in storing and uploading chats will be further discussed with TOM."

Caukin said in an e-mailed statement that Skype had publicly acknowledged in 2006 that in order to meet Chinese regulations, TOM was operating a text filter that blocked certain words on TOM-Skype chat messages without compromising customer privacy. But she said that policy had changed.

"Last night, we learned that this practice was changed without our knowledge or consent and we are extremely concerned." Caukin said.

TOM Group (2383.HK), parent company of TOM-Skype's majority owner TOM Online, said in an e-mailed statement that it follows Chinese regulations.

"As a Chinese company, we adhere to rules and regulations in China where we operate our businesses. We have no other comment," it said in the statement.

The comments follow a University of Toronto Citizen Lab report that said text messages sent between TOM-Skype users and between Skype users and T0M-Skype users, are scanned for phrases like "Taiwan independence" or "Falun Gong" or for opposition to the Communist Party of China.

When these keywords are found, the messages and information, such as usernames of subscribers, are stored on publicly accessible Web servers along with an encryption key that could be used to unlock the data, according to the report.

Skype Chief Executive Josh Silverman noted in the company's blog that the report refers only to communications in which one or more parties are using TOM software for text messaging.

"It does not affect communications where all parties are using standard Skype software," he said. (Reporting by Sinead Carew, with additional reporting by Savio D'Souza in Bangalore, editing by Gerald E. McCormick)