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Craigslist founder Craig Newmark
Craigslist Files Countersuit Against eBay
by
Liz Colville
Following eBay’s suit against Craigslist, in which it has a 25 percent stake, Craigslist filed a countersuit charging shareholder abuse.
30-Second Summary
In response to eBay’s lawsuit against Craigslist, filed April 30, the classifieds Web site has filed a countersuit claiming the online auction giant has “abused its position” as shareholder of the company, British newspaper The Guardian reports.
The initial suit filed by eBay states that Craigslist “unjustly denied representation” of the company on its board, and that primary shareholders Craig Newmark and James Buckmaster engaged in private meetings and transactions intended to benefit them and dilute eBay’s stock.
Craigslist and eBay joined forces after “an unusual 2004 transaction in which eBay acquired roughly 25 percent in Craigslist from a disaffected former business partner of Newmark,” according to SiliconValley.com.
Relations between the companies soured in 2007, however, when eBay launched its international classifieds site, Kijiji, in the United States. Craigslist deemed the launch “competitive activity,” as defined in its shareholder agreement, which dramatically changed the shareholder terms between the two companies.
Shortly after the launch, Craigslist expressed interest in finding a “new home” for eBay’s share of the company. But eBay’s then CEO, Meg Whitman, responded with an email saying that her company would “welcome the opportunity to acquire the remainder of (the company) we do not already own.”
The initial suit filed by eBay states that Craigslist “unjustly denied representation” of the company on its board, and that primary shareholders Craig Newmark and James Buckmaster engaged in private meetings and transactions intended to benefit them and dilute eBay’s stock.
Craigslist and eBay joined forces after “an unusual 2004 transaction in which eBay acquired roughly 25 percent in Craigslist from a disaffected former business partner of Newmark,” according to SiliconValley.com.
Relations between the companies soured in 2007, however, when eBay launched its international classifieds site, Kijiji, in the United States. Craigslist deemed the launch “competitive activity,” as defined in its shareholder agreement, which dramatically changed the shareholder terms between the two companies.
Shortly after the launch, Craigslist expressed interest in finding a “new home” for eBay’s share of the company. But eBay’s then CEO, Meg Whitman, responded with an email saying that her company would “welcome the opportunity to acquire the remainder of (the company) we do not already own.”
Headline Links: Craigslist strikes back at eBay
Craigslist is claiming eBay has “‘abused its position’ as a shareholder, at one point putting senior executives of its own rival classifieds site, Kijiji, on the Craigslist board and treating the site ‘as if it were one of eBay's subsidiaries,’” reports The Guardian.
Source: The Guardian
Reuters reports that Craigslist is also alleging that eBay used “misleading advertising on Google Inc. to run ads for its rival Kijiji site that appeared to be Craigslist ads.”
Source: Reuters
Background: Craigslist and eBay relationship sours
In 2007, eBay launched its classifieds site, Kijiji, in the United States. Craigslist notified eBay that it had breached Craigslist’s shareholder’s agreement on competitive activity. EBay then recommended a replacement for its member of Craigslist’s board of directors—a new hire without prior experience with Kijiji. Craigslist did not respond to this request, and proceeded to hold a series of meetings with its outside counsel, excluding eBay.
Source: eBay
According to SiliconValley.com, eBay felt it was “unjustly denied representation on the private company's board and that its stake in Craigslist has been unfairly diluted.” The article notes that eBay and Craigslist have “profoundly different business philosophies and styles.” Craig Newmark fosters a “‘community service’ ethos” while at the same time generating revenue that could price the site at several billion dollars.
Source: SiliconValley.com
On July 19, 2007, Craig Newmark appeared on “Charlie Rose” and discussed the future of Craigslist, seeming to dismiss any interest in making more money from the venture. EBay is using excerpts of the interview in its case.
Source: Google Video
Opinions & Analysis: Bloggers react to Craigslist countersuit
Steven M. Davidoff of DealBook discussed eBay’s suit against Craigslist on May 2. Davidoff wrote that the suit not only “describes a complete breakdown in the relationship of the parties involved,” but also “opens a window” on the “rather secretive” Craigslist. Davidoff explains how the emergence of Kijiji legally changed the shareholder relationship between Buckmaster, Newmark and eBay.
Source: DealBook blog on The New York Times
Rob Hyndman, a technology lawyer based in Canada, writes that Craigslist’s suit is “an attempt to accomplish by litigation what it failed to accomplish by business planning and sensible precautions among co-founders when it first issued shares.”
Source: RobHyndman.com
Reference: Craigslist and eBay court documents
EBay’s Suit against Craigslist
EBay’s court documents on the case are available as PDFs, with partial redactions as requested by Craigslist, on its Web site.
Source: eBay (PDF document)
Craigslist’s countersuit against eBay
James Buckmaster posted an entry about Craigslist’s lawsuit against eBay on the company’s blog, providing a PDF of the redacted court papers.
Source: Craigslist Blog
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