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craigslist Countersues eBay

Posted by: Jon Fine on May 13, 2008

In my most recent column, I wrote about the dust-up between craigslist and its minority shareholder eBay, and the lawsuit eBay filed against craigslist last month.

One thing that occurred to me: craigslist is plainly unhappy with eBay (and its craigslist-esque free classifieds service kijiji), but buying out eBay’s roughly 25 percent stake would probably cost something like $1 billion.

And either borrowing that or finding a different investor to buy out eBay could likely force all manner of changes on the ridiculously successful, ridiculously homespun site.

Unless, of course, craigslist decided to countersue eBay—which they did earlier today in San Francisco—and among other things ask:

That the Court order eBay to restore to craigslist all shares of the company owned by eBay which were acquired by means of, or for the purpose of, unfair competition; or, in the alternative, that the Court order eBay to divest its interests in craigslist . . .

Well, that would get craigslist out of owing a bank $1 billion, and making lots of changes to the business because of it!

CEO Jim Buckmaster, on the craigslist blog:

We filed a complaint in California today, charging eBay with unlawful and unfair competition, misappropriation of proprietary information, deceptive passing-off, business interference, false advertising, phishing attacks, free-riding, trademark infringement, trademark dilution, and breaches of fiduciary duty.

We respectfully ask the Superior Court in San Francisco to enjoin this conduct and order eBay to (1) make full restitution to craigslist, (2) disgorge their related profits (3) restore to craigslist all shares of the company acquired by means of, or for the purpose of unfair competition, and (4) pay punitive damages for their malicious behavior.

What Jim doesn't mention, if I understand this correctly, is that the suit today does not specifically address the eBay suit, which was filed in Delaware. And that presumably a craigslist reponse to eBay's suit in Delaware is pending shortly, possibly as early as this week.

Am reading the complaint, which is posted online here, now and am filling in the juicy and interesting bits as I get to them.

There's a lot about the wrangling in the run-up to eBay's acquisition of its craigslist stake.

An eBay spokeswoman has not yet returned a call. (UPDATE 6:55 PM EST: She just did, and emailed a lengthy response, which I include in full at the bottom of this post. Also, to reiterate a disclosure from the column: I'm friends with craiglist founder Craig Newmark.)

The complaint alleges:

That kijiji is referred to internally at eBay as a “craigslist killer.”

That, while all outward communications after eBay bought its minority stake from former craigslist staffer Philip Knowlton was about how eBay and craigslist shared a common vision and la-la-la happily ever after, there was friction from the beginning. eBay, according to the complaint, pushed for protections not present in Knowlton’s stake, which included “extensive blocking rights on all forms of corporate transactions, the right to approve craigslist’s budget and its hiring and firing of all officers, the right to financial information, a put/call allowing eBay to increase its share in the company to 50%, and a right of first refusal regarding sales of stock by craigslist or by any of craigslist’s stockholders.” Craigslist insisted these proposals were “overreaching and unacceptable,” and in fact told eBay on July 20, 2004 “that it had decided to discontinue discussions with eBay . . . and an alternative buyer would need to be found.”

That on July 31, 2004, after eBay's then-CEO Meg Whitman had a meeting in which she stressed eBay’s code of values and its simpatico with craigslist, it went directly to Knowlton (who is not named in the suit) and “purchased an option to acquire the Minority Interest . . . effectively terminat[ing] the efforts of an alternative investor which to that point had been actively pursuing a purchase of the Minority Interest and had already submitted a term sheet in connection with a potential acquisition.”

There is also, starting on page 10 of the complaint, a more legalistic laying out of the situation, including the assertion that

in the event eBay acquired the Minority Interest, and then chose to compete with craigslist in the Online Job Listing Market, eBay would of necessity need to relinquish certain rights it otherwise might have.

For craigslist, kijiji clearly falls into that category. Guess we'll find out what the courts say about that eventually.

All of the frictional stuff that arose around the actual deal for craigslist shares is interesting. Whether it proves anything other than eBay and craigslist have differing notions of how a company should conduct business--well, I have no idea.

As I said in my column, I've always felt that Newmark and craigslist CEO Jim Buckmaster have always played at being more naive about business than they actually are. But in the course of reporting out the column I was told that naivete is not entirely an act. In reading the complaint, I'm sometimes left wondering if my original notion about Buckmaster's and Newmark's business savvy is wrong.

Unless, of course, there's valid legal reasons for the complaint mentioning that "eBay agree[d] with craigslist's vision" and that eBay founder Pierre Omidyar "had a moral compass very similar" to Newmark's and Buckmaster's--legal reasons that my journalistic mind can't grasp.

UPDATE: An eBay spokeswoman emails the following statement:

We regret that craigslist felt compelled to resort to unfounded and unsubstantiated claims in order to divert attention from actions by craigslist's board that unfairly diluted our minority interest. eBay has, and will continue to be, a minority shareholder who believes in craigslist, shares its values and acts with openness, honesty and integrity in its dealings with craigslist's board and the online community. We strongly refute any suggestion to the contrary.

As craigslist notes, ‘From the very beginning of their discussions, craigslist and eBay accepted that each had, and would continue to have, the absolute right to compete with the other.’

As initially envisioned with our investment and known by craigslist's board, we also will continue to help grow the global classifieds market with products we believe serve targeted customer segments whose needs are not being met in the market today. Our goal with craigslist remains the same: to simply have our minority stake in this privately-held, for-profit company restored to its previous value. We hope this issue can be resolved quickly without further unnecessary distractions.

Things got much more interesting today, eh?

Reader Comments

James Stratton

May 13, 2008 7:53 PM

Everyone is talking about Craigslist and Ebay, but think how poor 'ol Philip Knowlton must feel! He sold out for a reported $12 million - 4 years later, that stake is worth over $1 BILLION


May 13, 2008 9:11 PM

James Stratton: He's in a castle somewhere in the Dominican Republic laughing about how trivial money is when you have 12 million dollars.

john shantz

May 13, 2008 10:13 PM

Once a heavy user of eBay, I am now finding them irrelevant. As they provide virtually no protection for the buyer and accomodate ridiculous shipping charges, one might as well use the free services. I'm sure I'm not alone.


May 13, 2008 11:38 PM

Yeah poor Philip Knowlton... What a great guy he is!?

Let's go start a successful search engine and I'll sell my 25% stake to Google.

I hope Microsoft buys a 25% stake in eBay. Then they might know what it's like; And will everyone please spare me the Pierre Omidayer (eBay Founder) crap regarding his admirable ethics.

Ken Carl

May 14, 2008 1:14 AM

Yikes. Interesting but unsurprising to learn out about eBay's actions behind the scenes. Knowlton is a dick-wad for selling out to them, and reaps what he has sewn.

All I can say is... there will be quite a few PO'ed regular Craigslist users - as in folks who contribute to it being a great little online community - if eBay starts to f**k it up. I, for one, would deny them ever another dime of my money. Craigslist is a model of a community-focused humanely-run corporation. Ebay isn't Halliburton, but light years behind Craigslist.

miho misuka

May 14, 2008 2:49 AM

Doesn't bother me one bit. Craigslist has become a free for all webmasters and spam posters. From the dating to for sale ... fake ads, spam, and cheezy porn. Craigslist needs to either reinvent themselves or just clean up the filth.


May 14, 2008 10:55 AM

I find the business naivete to by the most surprising. I am no shark, but I am continually puzzled that clear competitors can convince each other they are partners.


May 17, 2008 5:34 PM

I have to agree that Craigslist has become quite the delivery vehicle for such things as spam. Although it offers a great service that is both powerful and simple, it has it's drawbacks. That's why is whould remain free. With anything free, one has to accept a certain amount of risk.

Ebay has become too commercial but has it's own appeal which is obviously a success.

The 2 are competitors but there are also significant differences. I think that ebay should be allowed to keep its shares and gain value by advertising their unique services such as the auctions and broader range of products.

Craigslist's real appeal is the local markets it serves. For those looking to buy a piece of furiture without the wait and shipping.

It's like comparing your local newspaper to USA today.

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