eBay and Craigslist May Fight It Out in Court

Craigslist fired back at eBay today by filing a lawsuit alleging business interference and anti-competitive practices.

Recently eBay sued Craigslist when Craigslist reduced their ownership percentage below 25% thereby negating eBay’s seat on the Craigslist Board of Directors. Earlier this week, Craigslist fired back by filing a 26 page complaint against eBay alleging anti-competitive behaviour, trademark infringement and business interference among other complaints.

The details are somewhat complex, but the case is really simple.  Back in 2003 an unnamed shareholder of Craigslist wanted to sell his minority interest (about 26%) in Craigslist. eBay wanted to buy the interest but Craigslist founders were concerned that the stock be sold to someone who held their same values. Talks dragged on until July of 2004 when Craigslist CEO Jim Buckmaster met with Meg Whitman who sold them on the idea by citing eBay’s community values and code of conduce. It went back and forth a bit but in the end eBay ended up buying the stock and getting a seat on the board. Per the agreement, Pierre Omidyar took the board seat.

According to Craigslist’s complaint problems started immediately when eBay started seeking what Craigslist felt was confidential and proprietary business information. Later Pierre resigned from the board and was replaced by a fellow named Joshua Silverman. Silverman who would later end up running Skype, was at the time in charge of launching Kijiji, a classified advertising site that would compete directly with Craigslist.

I am leaving out a lot of details but you can read the full complaint by Craigslist at: http://blog.craigslist.org/etc/craigslist.vs.eBay.pdf.  But what it boils down to is that Craigslist alleges that eBay used their position on the board to gain information about Craigslist’s classified advertising business that they could use to launch Kijiji which competes against them. 

Another interesting aspect of the case is Craigslist assertion that eBay violated their trademarks.  You have to read down through most of the complaint but apparently what eBay was doing was a form of Keyword Spamming –a practice eBay forbids sellers to do.  Craigslist alleges that eBay purchased  keywords and phrases with the word "craigslist" in the Google AdWords Network and taking out ads with Craigslist in the headline but that had links to eBay and Kijiji.com. Here are some of the Google ads Craigslist allages eBay took out:

100% Free local classified site!
Compare Kijiji and Craiglist.org

100% Free local classified site!
Compare Kijiji and Craiglist.org

Browse a huge selection now.
Find exactly what you want today.
WWW Craigslist.org
Vast selection at affordable prices
Deal with Canadians and save money

I don’t know about you, but that sure looks like Keyword Spamming to me?

The case is interesting because it is essentially a David and Goliath battle of cultures — Its the Goliath  eBay corporate culture against Craigslist David.  Craigslist is a huge presence on the web, but compared to eBay it is quite tiny. Craigslist has about 25 employees while eBay has thousands. Craigslist basic classified ad service is free, but they make money by charging for apartment and job listings. Although Craigslist has a huge web presence, eBay makes more in a day than Craigslist makes in a year. And like eBay Craigslist has a very loyal community.

Of course there are two sides to every story –and every lawsuit. eBay also released details of their complaint against Craigslist, but it was apparently highly redacted whereas Craigslist released their entire complaint. you can read about the eBay lawsuit at this link: on Cnet: http://www.news.com/8301-10784_3-9933088-7.html

I don’t know the law in cases like this and eBay may be in a strong legal position here, but I used to live in California and have served on juries there. If Craigslist can get this in front of a jury they stand a pretty good chance of winning. This might be a case where eBay’s duty to their stockholders could best be served by reaching a settlement out of court.

eBay could easily afford any financial judgement levied against them, but these kind of legal battles are not good for your image which is an area eBay is already struggling with.  This case is a nit for eBay but represents absolute survival for Craigtslist. Juries rarely vote to kill the little guy.   eBay’s only hope is to win on some sort of technicality or point of law –but I am not sure that would represent a real win. This one looks like a lose-lose for eBay no matter how it comes out.

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