In a move that pits two of the Internet's most popular sites against each other, EBay Inc. sued the online classifieds company Tuesday, alleging it unfairly tried to dilute eBay's stake in it.
EBay purchased a 28 percent stake in privately held Craigslist in 2004.
But in January, eBay says, Craigslist's board, consisting of founder Craig Newmark and Chief Executive Jim Buckmaster, unilaterally acted to dilute eBay's economic interest in Craigslist by more than 10 percent.
In an entry titled "Tainted Love" that Craigslist posted on its blog Tuesday night, the company said the allegations are unfounded and the lawsuit came from out of the blue.
"Coming from a company that views Craigslist as a prime competitor, filing suit without so much as mentioning these assertions to us beforehand seems unethical, and suggests ulterior motives. ... Ebay has absolutely no reason to feel threatened unless a hostile takeover of Craigslist, or the sale of Ebay's stake in Craigslist to an unfriendly party, is their ultimate goal," the post said.
EBay, the world's largest online auctioneer, was an unsolicited suitor to quirky Craigslist in 2004. An unnamed former Craigslist shareholder sought out eBay and sealed a deal whose financial terms were never disclosed.
At the time, Newmark said the companies had similar philosophies, but a company spokeswoman said, "Craigslist has never sought any outside money, and that's not going to change."
EBay said at the time of the deal that it was interested in learning about the classifieds business, a portion of its own site that's been growing rapidly in recent years.
San Jose-based eBay made $7.7 billion in revenue in 2007 and has 279 million registered users. It is the 17th most popular English-language site, according to traffic ranking site Alexa, while Craigslist ranks 45th.
Craigslist, based in San Francisco, has never disclosed revenue figures. It charges for job ads and apartment listings only in select cities.
Newmark, a former IBM programmer, founded Craigslist in 1995 as a roundup of local events in San Francisco, but the bare-bones site fast became a popular online destination and has branched out to 450 cities worldwide. Although it has always used a ".org" domain name usually associated with nonprofits, Craigslist incorporated as a for-profit company in 1999.
With 25 employees working out of Victorian houses in San Francisco's Inner Sunset neighborhood, the site has grown from 1 billion page views per month in 2004 to 9 billion per month now, according to Craigslist. It hosts 30 million new classifieds a month, most posted for free.
EBay spokeswoman Kim Rubey declined to quantify eBay's current stake in Craigslist.
Much larger eBay, which has 15,000 employees, is asking Delaware's Court of Chancery to negate Craigslist's board's actions.
The complaint is under seal because of confidentiality restrictions, according to a company statement. Craigslist may ask the court to make the complaint publicly available, eBay said.
The lawsuit was announced 45 minutes before stock markets closed Tuesday. EBay's stock closed at $30.89, up 26 cents, then gained a penny in after-hours trading.