Court saga continues; Craigslist founder says eBay reneged on promises

GEORGETOWN, Del. (AP) – Internet auctioneer eBay Inc. began reneging on its promises to Craigslist shortly after taking a minority interest in the online classifieds site, Craigslist founder Craig Newmark testified Thursday.

Newmark said he began having concerns about eBay within months of inking a deal in August 2004 that gave eBay a 28 percent stake in Craigslist. He testified in a lawsuit in which eBay claims he and Craigslist CEO James Buckmaster improperly acted to dilute eBay’s minority interest after a falling out in 2007.

EBay executives, including then-CEO Meg Whitman, indicated that they would be happy with holding a minority stake for several years, and that Craigslist would be eBay’s exclusive play in the online classifieds market, Newmark said.

Instead, eBay soon began pressing for a bigger stake in Craigslist and acquiring other online classified sites overseas.

“EBay, specifically Meg Whitman, made commitments and broke them,” Newmark said.

Newmark said he considered eBay’s insistence on acquiring more than 28 percent to be a deal breaker for Craigslist, which also had received overtures from Google Inc. and private equity firm Warburg Pincus. He said talks with eBay had “cratered” before he and Buckmaster were called to a meeting with Whitman in July 2004.

Whitman, who is seeking the GOP gubernatorial nomination in California, assured Craigslist that she was happy with a 28 percent share while the two companies went through a three-year “courtship,” Newmark testified. Whitman said the relationship would end amicably if it didn’t work, and reiterated that Craigslist was “the” play in classifieds for eBay, according to Newmark.

“We decided that eBay could be trusted, and we proceeded with the deal,” he said, adding that eBay executives assured him that they shared Craigslist’s community-oriented values.

But Newmark said no one at eBay, which is based in San Jose, California, informed him that the company was working to acquire online classified sites in Europe and was developing its own classifieds project, named Kijiji, at the same time it was talking to Craigslist.

He also said no one told him that eBay employees working on other classifieds projects were sharing confidential Craigslist information.

“What would your reaction have been?” defense attorney Anne Foster asked Newmark.

“Deal breaker,” Newmark responded.

Newmark defended the poison pill and other corporate measures adopted by San Francisco-based Craigslist in January 2008 in response to eBay’s domestic launch of Kijiji in the United States.

“I was certain that they treat all shareholders fairly,” he said.

But eBay contends that the measures improperly diluted its stake in Craigslist and resulted in the loss of its Craigslist board seat.

“We feared that people might be nominated to the board who might not have the interest of the (Craigslist) community and the company at heart, so we wanted to make it harder for them to be on the board,” Newmark said.

Under cross-examination from eBay attorney Michael Rhodes, Newmark said he did not personally contact any eBay officials in late 2007 to let them know the corporate governance measures were being considered.

Rhodes also noted that while Newmark accused eBay officials of dishonesty, he misled members of Craigslist who asked if he had received any money from the August 2004 deal, or whether Craigslist had sold stock to eBay. In fact, Newmark received $9.5 million, and the deal was structured in a way in which Craigslist sold new stock to eBay, Rhodes said.

“You misled them time and again,” he told Newmark.

Newmark replied that he was acting in accordance with an agreement not to disclose details of the transaction.

Testimony resumed on Friday.

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

AP-CS-12-10-09 2051EST