eBay’s Craigslist Suit About Classified Ads

Turns out that suit eBay filed against Craiglist last week really is about the online classified ad market. After filing the suit under seal in a Delaware court last week and saying only that Craiglist had taken unilateral actions to dilute eBay’s 28.4 percent stake in Craigslist, eBay has now published the text of its complaint (PDF), minus some redactions the company claims were requested by Craigslist. The complaint reveals that Craigslist apparently considered eBay’s own classified ad server Kijiji—launched in 2005 and brought to the U.S. in mid-2007—to be an activity that competes with Craigslist and therefore invalidates some shareholder rights eBay acquired with its 28.4 percent stake. eBay says Craigslist’s interpretation of the terms is incorrect, and seeks to have the diluting transactions nullified.

According to eBay, it would lose the right of first refusal to purchase Craigslist stock (either newly issued or sold by Craigslists’ other two primary shareholders) if it engaged in “competitive activity;” similarly, Craigslist’s primary shareholders would lose first crack at eBay’s shares of Craigslist. eBay readily acknowledges Kijiji is competitive activity, but alleges that Craigslist CEO Jim Buckmaster and founder Craig Newmark violated terms of their agreement by going on to engage in “a series of clandestine transactions designed to ensure that eBay would not be able to elect a director, and to either impose new transfer restrictions on eBay or dilute its interests, and to dilute the interest of the employee holders of company stock options.”

The text of eBay’s complaint makes clear that eBay would like to be the top player in the online classified’s business, and as plainly frustrated at Craigslist unwillingness to fully monetize the service. In July of 2007, former eBay CEO Meg Whitman apparently broached the idea of eBay acquiring the rest of Craigslist.

In its corporate blog, Craigslist says it will file a formal response to eBay’s complaint in a few weeks. “Sadly, we have an uncomfortably conflicted shareholder in our midst, one that is obsessed with dominating online classifieds for the purpose of maximizing its own profits.”