CyTRAP Labs - EU-ReguStand

EBay’s launch of its competing Kijiji site …
eBay used its shareholder status to plant on Craigslist’s board of directors the individual responsible for launching and/or operating Kijiji.
Conflict of interest? Bad corporate governance by EBay or abuse of trust and misuse of insider information by EBay? The courts will have to decide.

Craigslist is one of the top ten largest web sites in the world. Ut provides mostly its free classified ad service for millions of people in 567 cities around the world.

Craigslist is owned by a private company. In November 2004, an early shareholder sold his shares to the online auction giant EBay - the world leader in online auctions and payment services. EBay purchased the minority stake as part of its strategy to get into classified advertising in North America and europe. As a result, EBay is a minority shareholder in Craigslist.

Initially Craig Newmark (founder) and Jim Buckmaster (CEO) agreed to the sale because they were impressed by EBay’s stated common values. BAsed on Ebay’s founder and chairman Pierre Omidyar and his widely publicized philanthropic activities the even asked him to be Ebay’s representative.

Unfortunately, things started falling apart very quickly as Ebay demanded more control over Craigslist and access to competitive information. The falling out between the two companies is now the subject of of two lawsuits filed against each other.

A) Ebay has complained that Craigslist illegally reduced its minority holding and last week ( EBay’s suit in Delaware Chancery Court),

B) Craigslist complained that Ebay stole proprietary information and engaged in other nefarious activities (Craigslist’s suit in California Superior Court in San Francisco).

The Craiglist blog states it as follows:

“We filed a complaint in California today, charging eBay with unlawful and unfair competition, misappropriation of proprietary information, deceptive passing-off, business interference, false advertising, phishing attacks, free-riding, trademark infringement, trademark dilution, and breaches of fiduciary duty.
We respectfully ask the Superior Court in San Francisco to enjoin this conduct and order eBay to
(1) make full restitution to Craigslist,
(2) disgorge their related profits
(3) restore to craigslist all shares of the company acquired by means of, or for the purpose of unfair competition, and
(4) pay punitive damages for their malicious behavior.”

An example of how this looked on the Yahoo! search engine is shown here:

Yahoo search result being served to the user with a sponsored link from EBay for its with Craigslist competing Kijiji serviceEBay and Craigslit compete directly in the United States and a dozen other countries, with Kijiji tailoring its ads to young families in contrast to Craigslist’s open flea-market style.

“In the months leading up to the launch of its competing Kijiji site … eBay used its shareholder status to plant on Craigslist’s board of directors the individual responsible for launching and/or operating Kijiji.”

Full text of complaint is available here:

html or as a pdf file for your archives.

What is also strange is that some people who have listed a classified on Craigslist are shortly thereafter the recipient of an e-mail message that looks like this:

details on how EBay supposedly spams Craigslist advertisers - based on insider info?

Corporate Governance

It is obvious that the EBay board representative that was also in charge of launching and managing the competing Kijiji service from EBay

Must have had numerous occasions where he was in a clear conflict of interest between either serving Craigslist’s best interest or else those from EBay that was building up a service in direct competition with Craigslist.

This is a classical case of information asymmetry. EBay gained insider information by witholding critical information to fellow Craiglist board members and sharholders/investors. Surely, EBay’s representative would have never been granted a seat on the board, had it kown that he was responsible for and managing the launch of a competitive product on behalf of EBay.

Silicon Valley Watcher Tom Foremski’s take on the case

Craigslist’s complaint alleges that EBay used its position as a minority shareholder to pressure Craigslist into a full-scale acquisition deal by eBay.

Craigslist argues eBay used its position to gather competitive information that led to the launch of eBay’s rival classifieds business. It charges eBay code-named this its “Craigslist killer” in internal strategy discussions.

Whatever EBay did, moral it surely was not. As well, this puts a bad light upon the company’s management. Furthermore, Ebay’s founder and chairman Pierre Omidyar and his widely publicized philanthropic activities may be worth zero for reputation management purposes.

How much worth are his philantorpic activities when his company does such things. This seems a classic case where reputation management fails due to greed and stupidity by some.

California Superior Court in San Francisco, corporate governance, Craigslist, Delaware Chancery Court, EBay, independent directors, insider information, Kijiji, liability, reuptation management

This entry was posted on Tuesday, May 20th, 2008 at 12:58 and is filed under legislative watch - North America. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.