Online auction company eBay has gained a court victory over its corporate venturing investment in classifieds website Craigslist.
A US judge ruled Thursday that Craigslist founder Craig Newmark and chief executive Jim Buckmaster violated their responsibilities to eBay – which bought a stake in Craigslist in 2004 – with changes they implemented that diluted eBay’s share from 28.4% to 24.9% and made it harder for eBay to sell the interest, according to newswire Associated Press (AP).
Craigslist made the changes in 2008 after determining that eBay had changed from a partner to a threat, AP added.
That shift happened after eBay launched a US version of its Kijiji classifieds site, which competed directly with Craigslist, and started buying online ads steering internet users looking for Craigslist to its own sites, Buckmaster testified in a nine-day trial.
The judge, William Chandler III of Delaware’s Court of Chancery, ordered Craigslist to reverse the steps that diluted eBay’s stake in Craigslist, AP said. However, he allowed another step that Craigslist took to keep eBay at bay to stand. That move made it harder for eBay to unilaterally name a director to Craigslist’s board.
"EBay brought this suit to protect its own shareholders and preserve its valuable investment in Craigslist," Michael Jacobson, eBay’s general counsel, said in a statement reported by AP. "The evidence presented at trial demonstrated that the actions were taken by Mr Buckmaster and Mr Newmark to benefit themselves at the expense of eBay, and we are gratified that the court recognized these actions were both unfair and unlawful and rectified the situation."
Craigslist, which is based in San Francisco, representatives did not immediately respond to a message from AP.
The fight centres on whether Craigslist was justified in actions that it claimed were defensive.
Craigslist accused eBay of misusing confidential information to start Kijiji, trying to seize control of Craigslist after buying the minority stake, and refusing to make good on a promise to help Craigslist expand internationally.
Craigslist officials have said that former eBay chief executive Meg Whitman, who is now running for California governor, assured them that Craigslist would be eBay’s exclusive partner for online classifieds in the US.
After Kijiji launched in the US, Newmark and Buckmaster wrote to Whitman and expressed their unhappiness at having eBay as an investor and wanted to buy back eBay’s stake or convince eBay to sell it to someone else, according to eBay’s lawsuit. Whitman replied that eBay did not want to unload its stake in Craigslist and in fact wanted to buy the company outright if given the chance.
EBay argued that it retained the right to compete broadly with Craigslist, and the changes Craigslist made in response to eBay’s moves went beyond the penalties allowed in the original shareholders agreement between the companies.