Reuters - Craigslist sues eBay, alleges corporate spy plan

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Craigslist sues eBay, alleges corporate spy plan

Wednesday, May 14, 2008 1:29PM UTC

By Eric Auchard

SAN FRANCISCO (Reuters) - Online classifieds leader Craigslist.com filed a countersuit on Tuesday against business rival eBay Inc, alleging eBay used its minority stake in Craigslist to steal its corporate trade secrets.

In a lawsuit filed in California Superior Court in San Francisco, 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 in Delaware Chancery Court charged Craigslist had used "clandestine meetings" to dilute eBay's 28.4 percent stake in Craigslist to 24.85, or 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 Inc to run ads for its rival Kijiji site that appeared to be Craigslist ads.

The lawsuit demands that eBay restore all shares of Craigslist owned by eBay or for the court to require eBay to divest its holdings in Craigslist. The suit asks eBay to disgorge profits tied to the business and for punitive damages.

EBay spokeswoman Kim Rubey responded to Craigslist's lawsuit against eBay, saying: "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, the world leader in online auctions and payment services, 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 United States and Europe.

In 2004, eBay began to expand into the market through the acquisition of online classified businesses Marktplaats and later, LoQuo and Gumtree. 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 United States.

Craigslist and eBay grew out of the same early rush to create Web businesses in Silicon Valley in the mid-1990s.

But their paths quickly diverged as eBay went on to dominate online auction markets, becoming a multibillion company, while Craigslist stayed true to its uncommercial ethic by not charging for most of its local listings.

Craigslist operates with only a few dozen employees. Its headquarters is located in a modest, century-old Victorian house located in a residential neighborhood of San Francisco. It relies on volunteers to run sites in 567 cities worldwide.

They compete directly in the United States 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 a plot by San Jose, California-based eBay to use its position as a minority shareholder and its position on the board to pressure Craigslist into a full-scale acquisition deal by eBay.

Barring that, Craigslist argues eBay used its position to gather competitive information that led to the launch of eBay's rival classifieds business. It charges eBay code-named 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 alleges 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.

Rubey quoted from Craigslist's own complaint to suggest that both parties recognized that the right of the other to compete with one another. However, the Craigslist lawsuit says eBay would relinquish some rights if it chose to compete with Craigslist on online job listings, its sole source of revenue.

The Craigslist complaint can be found at http://blog.craigslist.org/2008/05/unlawful-and-unfair/.

(Editing by Tim Dobbyn and Andre Grenon)