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eBay releases details of complaint against Craigslist

Auction site believes Craigslist unfairly reduced its ownership stake following eBay's launch of rival online classifieds service Kijiji, according to a copy of the lawsuit.

The mystery over what prompted eBay to sue Craigslist last week appears to be solved.

Apparently eBay feels that its ownership stake in Craigslist was unfairly reduced following eBay's launch of rival online classifieds service Kijiji, which went live overseas in 2005 and in the U.S. in 2007, according to the 26-page lawsuit filed in Delaware's Court of Chancery and made available by eBay on Wednesday.

According to the heavily redacted, public copy of the complaint, which names Craigslist founder Craig Newmark and CEO Jim Buckmaster, Craigslist views Kijiji as a competitive activity that cancels some shareholder rights that eBay acquired in 2004 when it bought a stake in Craigslist.

In response to that, Craigslist reorganized its stock structure in January, reducing eBay's stake in the online classified site from 28.04 percent to 24.85 percent. The reduction mean that eBay loses the ability to elect a director.

However, eBay feels Craigslist overstepped its rights and has filed suit over the diluting of its stake.

"The original agreement between the two parties always envisioned that there could be competitive activity," eBay spokeswoman Kim Rubey told the Associated Press.

The lawsuit also discloses that Meg Whitman, who was CEO of eBay at the time, offered to buy the remainder of Craigslist in a letter to Craigslist in July 2007. Whitman's letter was in response to a letter Buckmaster sent that expressed "'negative' feelings toward eBay's launch of Kijiji," and that stated "we are no longer comfortable having eBay as a shareholder."

Whitman responded by saying that eBay had taken steps to "firewall off" its Kijiji operations from the corporate management of its equity stake in Craigslist, according to the suit.

She went on to say that eBay was "so happy" with its relationship with Craigslist that "we would welcome the opportunity to acquire the remainder of (the company) we do not already own whenever you and (Newmark) feel it would be appropriate," according to the lawsuit.

Craigslist plans to make a formal response to the complaint in the next few weeks, the company said on its blog.

"Sadly, we have an uncomfortably conflicted shareholder in our midst, one that is obsessed with dominating online classifieds for the purpose of maximizing its own profits," Craigslist's blog said.