* Trial set to begin Dec. 7 in Delaware
* Case hinges on size of eBay's minority stake
* Craigslist cites threat from eBay
By Alexandria Sage
SAN FRANCISCO, Dec 2 It's a story fraught with
accusations of broken promises, backroom deals and deception,
leaving an established Internet giant fighting to preserve its
valuable stake in a well-loved classified advertising website.
A lawsuit filed by EBay Inc (EBAY.O) against Craigslist
heads to a Delaware state courtroom next Monday, for a trial
that promises to reveal the inner workings of two benchmark Web
companies and bring to the witness stand two Internet pioneers:
former eBay Chief Executive Meg Whitman and Craigslist founder
The twice-delayed trial will likely underscore the glaring
differences in the companies' approaches to business.
EBay, one of the high-flyers in the dot-com boom, pioneered
online auctions and spurred millions of people around the world
to sell and buy on the Web.
Despite generating $8.5 billion of revenue in 2008 and
employing thousands of people, the San Jose-based company has
been forced to broaden its market to better compete and expand
beyond its traditional online auctions.
In contrast, privately held Craigslist, with only a few
dozen employees, is now the top U.S. online classifieds site,
beloved for its mostly-free service to help people find homes,
adopt pets or sell junk from their garages.
Craigslist executives say they are driven by community, not
a lust for profit.
At issue is eBay's minority ownership in San Francisco's
Craigslist, a company that eBay says could potentially be worth
several billion dollars.
In its April 2008 lawsuit, eBay claimed that Newmark and
Chief Executive James Buckmaster hatched a "coercive plan" in
2007 and conducted "clandestine transactions" that diluted
eBay's stake to 24.85 percent from 28.4 percent.
Because eBay's ownership fell below 25 percent, it lost its
seat on Craigslist's board.
EBay said an original shareholder agreement to be produced
in court clearly outlined each party's rights and
"We are very confident we acted properly throughout the
relationship," Deputy General Counsel Mary Huser said in an
interview. "We were open and honest regarding what we were
doing and our intentions."
A Delaware Chancery Court judge in October dismissed two
eBay charges, but five counts including breach of fiduciary
duty and issues related to the dilution of eBay's stake
Craigslist, in a separate lawsuit, filed in San Francisco
Superior Court a month after eBay sued in Delaware, charged
eBay with unfair competition, misappropriation of proprietary
information, false advertising, trademark infringement and
other deceptive practices.
In both cases, Craigslist claims that eBay used its seat on
the board to obtain information and expertise to launch a
competing classified advertising business, all the while
denying that was its intention.
In the run-up to the trial of the Delaware lawsuit, which
is expected to last two weeks, Craigslist has depicted its
larger rival in an unsavory light.
"EBay has unclean hands," fueled by a frustrated desire to
own Craigslist outright, Craigslist said in a pretrial brief.
Craigslist claimed that after eBay in 2004 bought shares
from one of Craigslist's original investors, worried perhaps
that a rival such as Google Inc (GOOG.O) might swoop in if it
tarried, Whitman maintained that eBay had no designs on the
company, and that Craigslist would become its "play in
But Craigslist said eBay never revealed that it was
developing its own classified site, Kijiji, which it launched
internationally in 2005 and in the United States in 2007.
"If it could not own Craigslist, eBay would exploit its
position as an insider and use Craigslist's confidential
information, experience, skill and innovations against
Craigslist," Craigslist wrote.
Whitman is now a Republican candidate to succeed Arnold
Schwarzenegger as governor of California. Her spokesman
declined to comment, referring questions to eBay.
Craigslist also claims that eBay used deceptive tactics to
direct traffic away from its site.
Legal briefs show online ads allegedly paid for by eBay
used Craigslist's name but diverted users to Kijiji or eBay.
Craigslist also contended that eBay, through its board
seat, obtained confidential information such as traffic and
listings data, and passed it to Kijiji executives. Former eBay
board member Josh Silverman spearheaded the Kijiji launch, it
Current eBay Chief Executive John Donahoe is not expected
to testify. He has tried to play down the significance of the
trial, saying it is simply an issue of whether eBay owns 25
percent or 28 percent of Craigslist. He calls eBay's stake in
the company a "nice investment."
The Delaware case is eBay Domestic Holdings Inc v Newmark,
et al, Delaware Chancery Court, No. 3705-CC.
(Editing by Steve Orlofsky)
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((See blogs.reuters.com/shop-talk/ for Shop Talk --
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