EBay Lawyer Says Confidential Craigslist Data Used (Update4)

Dec. 9 (Bloomberg) -- An EBay Inc. lawyer said confidential information the online-auction company gleaned from its part ownership of Craigslist Inc. was used to help start up a competing classified-advertising Web site.

Brian Levey, an EBay vice president and one of its in-house lawyers, said today that EBay received the information because of its minority stake in Craigslist and used it to develop the rival Kijiji site in 2007. Levey testified in a trial over EBay’s claims that Craigslist unfairly devalued EBay’s 28 percent stake in the company.

“We used it to benefit our business to the extent it was in compliance” with an agreement covering the investment, Levey said under cross-examination by a Craigslist attorney.

EBay is asking Delaware Chancery Court Judge William B. Chandler III to find Craigslist officials violated Delaware corporate law by issuing shares to themselves to dilute EBay’s stake and caused as much as $110 million in losses tied to the investment.

EBay, based in San Jose, California, contends Craigslist founders Jim Buckmaster and Craig Newmark unfairly stripped it of a Craigslist’s board seat that accompanied the investment. EBay runs the world’s most-visited e-commerce site, according to Reston, Virginia-based ComScore Inc., an Internet-marketing research firm.

‘EBay’s Rights’

“This case is about Craigslist’s secret scheme to wrongfully diminish EBay’s rights as a minority shareholder, which EBay is asking the court to remedy,” Alan Marks, an EBay spokesman, said in a statement responding to Levey’s testimony about the use of Craigslist information.

Craigslist officials counter that they changed the closely held company’s stock structure to beef up its anti-takeover defenses.

They allege former EBay Chief Executive Officer Meg Whitman and other officials repeatedly offered to buy San Francisco- based Craigslist, the most-visited U.S. classifieds site, according to Altamonte Springs, Florida-based Advanced Interactive Media Group LLC.

EBay officials used their seat on Craigslist’s board to engage in “data mining” that helped improve EBay’s systems, Craiglist’s lawyers said in court filings. EBay focused on confidential financial information in hopes of learning about Craigslist’s competitive advantages, according to the filings.

“You can raise questions, but whether it’s improper is a very tough call,” said Peter Zollman, founder of Advanced Interactive, a consulting firm that the tracks the classified- advertising industry. “I can certainly see how Craigslist would say that’s not right.”

Little Warning

In his testimony, Levey said EBay officials knew they should give Craigslist executives some warning about the advent of Kijiji’s U.S. version in 2007.

An EBay team decided in April 2007 that the site should go online, Levey said. EBay managers waited until 10 days before the June 2007 launch to tell Craigslist because of logistical concerns, he said.

“Why did you wait so long?” Craigslist lawyer Michael Clyde asked.

“We didn’t want to announce something before we were ready to launch,” Levey responded. “From an intellectual property perspective, we didn’t want people becoming squatters” on the Kijiji domain name, he said.

‘Wouldn’t Be Ecstatic’

Clyde noted that Levey knew that Buckmaster and Newmark “would be very upset” to learn that EBay had opened a competing U.S. classified-advertising site. “I knew they wouldn’t be ecstatic,” Levey replied.

The EBay lawyer also acknowledged that he collected confidential Craigslist financial information for a three-year period starting in 2004 at the request of the Kijiji project team.

“They had been asking for it,” Levey said.

The Delaware case is EBay Domestic Holdings Inc., v. Craig Newmark, CA3705, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net.

To contact the editors responsible for this story: David Rovella at drovella@bloomberg.net; Jonathan Thaw at jthaw@bloomberg.net.