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Did eBay's Kijiji launch spook Craigslist?

Experts said nearly a year ago that eBay's plan to compete with Craigslist and be part of Craigslist board was a "conflict of interest."

How would you like having one of your main competitors sitting on your board?

That's the position Craigslist found itself in after eBay bought a 28 percent share of the online classified publication in August 2004. The relationship was cordial until last July 3, when eBay launched a U.S.-version of Kijiji, its own classified Web site and Craigslist competitor.

I thought back to that day when I heard eBay had filed a lawsuit this week against Craigslist founder Craig Newmark and CEO Jim Buckmaster. The online auction service alleged that the men tried to strip eBay of its rights as a Craigslist minority shareholder and attempted to dilute its ownership stake.

When Kijiji launched in the U.S., I asked Newmark and Buckmaster: "Isn't it weird revealing your company's secrets to a huge rival, one who just happens to sit on your board?"

Both men downplayed the problems, but Buckmaster wrote what now appears to be a poignant e-mail: "I'm not a legal expert but I think it's safe to assume (eBay) will continue to conduct themselves appropriately with respect to their responsibilities to Craigslist."

Less than two weeks later, Buckmaster changed his tune and would ask eBay to sell its Craigslist shares. The question now is what made him change his mind so quickly.

To his credit, Greg Sterling, of consultancy Sterling Market Intelligence, whom I interviewed for the July 3 story, predicted there would be trouble. Speaking then about eBay's position as a Craigslist board member as well as a competitor Sterling said: "There is definitely a conflict of interest."

Anybody who has ever heard Newmark speak knows how much the online classifieds publication means to him. He has never given any indication that he is interested in cashing out. According to the lawsuit, Newmark once said: "Death is my exit strategy."

But Newmark's desire to keep control of Craigslist led him and Buckmaster to violate eBay's rights, the auctioneer alleges.

After reading the 29-page complaint, the positions of both sides comes through clear. Newmark and Buckmaster are uncomfortable with one of their main competitors sitting on their board, and eBay makes no secret of its desire to gain control of Craigslist.

Their positions were revealed in correspondence last year between Buckmaster and former eBay CEO Meg Whitman.

Last July, just a week after eBay launched a U.S. version of Kijiji, Buckmaster wrote to Whitman: "we are no longer comfortable having eBay as a shareholder and wish to explore options for our repurchase, or for otherwise finding a new home for these shares."

Whitman wouldn't hear of it.

"We are so happy with our relationship with the company," Whitman wrote back, "that we could neither imagine...parting with our shareholding in the company under any foreseeable circumstances. Quite to the contrary, we would welcome the opportunity to acquire the remainder of the company we do not already own."

A judge will decide whether Buckmaster and Newmark violated eBay's rights when it made moves that eBay alleges were aimed at limiting its ability to sell its Craigslist stake, diluted its shares to less than 25 percent and prevented eBay from appointing board members.

The auctioneer also accuses Buckmaster and Newmark of violating their fiduciary duty.