EBay and Craigslist square off in Delaware court

GEORGETOWN, Delaware/SAN FRANCISCO (Reuters) - EBay Inc’s former chief executive, Meg Whitman, took the witness stand on Monday to make the case online classifieds site Craigslist unfairly cut eBay’s stake in the company.

Former eBay chief executive Meg Whitman exits the courthouse after testifying in the eBay versus Craigslist trial at the Chancery Court in Georgetown, Delaware December 7, 2009. REUTERS/Tim Shaffer

EBay sued Craigslist in 2008 for lowering its ownership stake to 24.85 percent from 28.4 percent, causing the e-commerce giant to lose its seat on Craigslist’s board.

Craigslist sued eBay a month later in San Francisco, saying the larger rival used its board seat to glean information to launch its own classified site, Kijiji, and employed deceptive tactics to direct traffic away from Craigslist’s site.

Whitman, who is running for governor of California and took the stand on Monday, denied eBay was out to steal Craigslist’s secrets. She said eBay had bought shares of Craigslist from disgruntled shareholder Philip Knowlton in 2004 in the hope of ultimately owning the company outright and keeping competitors at bay.

“We were very interested in making an acquisition of Craigslist and we would have loved to have bought the whole thing,” Whitman said, testifying in front of about 20 people in a small courtroom in Delaware, where eBay is incorporated. “But we understood early on that was not going to be possible, at least early on.”

Whitman said eBay paid $32 million for its stake in Craigslist -- $16 million to Knowlton and $8 million each to Craigslist co-founder Craig Newmark and CEO Jim Buckmaster in exchange for special rights that included an ability to block the issuance of new shares.

EBay sought to have a “collaborative” relationship with Newmark and Buckmaster -- and be a “good partner,” she added.

“We knew there was no path to control unless they sold us the shares,” Whitman said.

EBay first sued Craigslist in Delaware in April 2008 -- claiming that Newmark and Buckmaster hatched a “coercive plan” to dilute eBay’s stake and strip it of its board seat -- but Craigslist a month later filed a lawsuit over the same issues in San Francisco.

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Craigslist said eBay never revealed it was developing Kijiji, which it launched internationally in 2005 and in the United States in 2007.


Whitman, appearing calm and confident, said eBay had an ambitious vision for an international classifieds business. She said she did not initially reveal a plan to buy Dutch classifieds site Marktplaats to Craigslist because the deal had not yet closed.

Under cross-examination, Whitman said she was aware eBay would have to give up some of the special rights it had purchased from Buckmaster and Newmark, however, when eBay launched a U.S. version of Kijiji that included job listings.

Also on the stand was eBay founder Pierre Omidyar, who temporarily sat on Craigslist’s board. He testified that eBay fully disclosed to Craigslist that it intended to launch a classified business in the United States.

“I did disclose that eBay was going to do classified aggressively and going to launch Kijiji,” he said.

“My recollection at that time was that I was to communicate the urgency and anyone sitting across the table from someone who says eBay is committed and is going to aggressively pursue these opportunities would understand that,” he added.

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.

The trial, which could last about a week, is being broadcast over Courtroom View Network.

The case is eBay Domestic Holdings Inc v Newmark, et al, Delaware Chancery Court, No. 3705-CC.

Additional reporting by Phil Wahba in New York; editing by Tim Dobbyn and Andre Grenon