Craigslist hits back at Ebay with a lawsuit of its own

 

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By Reuters

Posted on 14 May 2008 at 08:22

Online classifieds leader Craigslist.com has filed a countersuit against Ebay, alleging the auction site used its minority stake in Craigslist to steal corporate trade secrets.

In a lawsuit filed in the California Superior Court, Craigslist challenged allegations in an Ebay suit filed in Delaware state court in April that accused Craigslist of discriminating against Ebay as a shareholder.

Ebay's suit claimed Craigslist had used "clandestine meetings" to dilute Ebay's 28.4% stake in Craigslist to 24.85%, less than a quarter of the company.

In addition to unfair competition and fraudulent business claims, the countersuit accuses Ebay of copyright infringement and using misleading advertising on Google to run ads for its rival Kijiji site that appeared to be Craigslist ads.

The lawsuit demands that Ebay returns all of its Craigslist shares or for the court to require Ebay to divest its holdings. The suit also asks Ebay to disgorge profits tied to the business and for punitive damages.

"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," said Ebay spokeswoman Kim Rubey.

From partners to rivals

Ebay took a minority ownership stake in Craigslist nearly four years ago as part of a strategy to buy up classified advertising services both in the US and Europe.

In 2005, Ebay launched its own free online classifieds site named Kijiji in nearly a dozen markets in Europe and Asia. A year ago, it entered the US.

The two companies now compete directly in the US and a dozen other countries, with Kijiji tailoring its ads to young families in contrast to Craigslist's open flea-market style.

Craigslist's complaint alleges by Ebay to use its position as a minority shareholder and its position on the board to pressure Craigslist into a full-scale acquisition deal.

Barring that, Craigslist argues Ebay used its position to gather competitive information that led to the launch of its rival classifieds business. It claims Ebay codenamed this its "Craigslist killer" in internal strategy discussions.

"In the months leading up to the launch of its competing Kijiji site... eBay used its shareholder status to plant on Craigslist's board of directors the individual responsible for launching and/or operating Kijiji," the latest suit alleges.

It also claims eBay used its position on the Craigslist board to pressure the company to provide it with key details of its expansion plans and operating performance. "Using the pretext that the information was necessary for Craigslist board-related matters, Ebay made constant demands for confidential information in excess of what was required for that purpose," Craigslist alleges.

Craigslist has until Monday to respond to Ebay's original lawsuit that seeks to protect its minority shareholder rights.