April 30 - EBay filed a lawsuit against Craigslist seeking to settle disputes over eBay’s ownership rights of Craigslist stock. The Delaware lawsuit only recently went public, disclosing the complaint and heated battle between the two companies. EBay names Craigslist founder Craig Newmark and Chief Executive Jim Buckmaster in the complaint. The subject of the dispute appears to revolve around eBay’s launching of their free classified website Kijiji.com.
One year ago, EBay bought 28 percent of Craigslist stock in 2005 on the condition that if EBay entered into the online classified ad market, the companies would lose the right of first refusal to buy shares of each other’s company. In 2005, eBay launched Kijiji.com, a site with similar services as Craigslist, internationally. Recently, eBay launched the site in the United States.
Craigslist notified eBay of its competitive practices and the loss of the right of first refusal in buying Craigslist stock. In January 2008, Craigslist entered a restructuring deal and issued one “reorganization share” for every share of common stock. This move diluted the value of each Craigslist share, dropping eBay’s ownership from 28 percent to just under 25 percent. According to Craigslist’s bylaws, this drop in ownership removed eBay’s right to elect a director on the company’s board.
EBay claimed that Newmark, Buckmaster, and other controlling shareholders are breaching fiduciary duties of “care, loyalty, and good faith by implementing certain self-dealing transactions.” EBay claims that they have made efforts to separate Kijiji services so as to remain in a different market from Craigslist. EBay also publicly announced that it would be completely open to a complete acquisition of Craigslist, which likely would solve the problem. The only apparent roadblock seems to be Newmark and other controlling shareholders refusal to hand over the company to eBay.
EBay must have a creative argument in its arsenal to claim that Kijiji US somehow does not engage in similar business services as Craigslist. The site provides an almost identical organization of geographic classifieds, broken down by items for sale, jobs, free stuff, and services. The sites tag line is even “Free local classifieds.” In all other circumstances, this ad would appear to be a typical competitor. If the terms of the agreement between ebay and Craigslist prohibit eBay from entering the local classified market, eBay will need creative lawyering to justify its claims against Newmark and Buckmaster. See below for a screen shot of Kijijij.com.
A copy of the complaint is available here (.pdf format).
The New York Times reports here.
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