|Thu Oct 14 2010 23:21:01|
Craigslist Adds Pierre Omidyar as Defendant in eBay Lawsuit
By: Ina Steiner
Craigslist filed an amended complaint on Tuesday in which it added Pierre Omidyar and former eBay executive Josh Silverman as defendants in its lawsuit against eBay, alleging they breached their fiduciary duties as Craigslist Board members. AuctionBytes broke the story Thursday evening in Newsflash, now here's some back story.
In 2004, Craig Newmark and Jim Buckmaster were forced to agree to a sale of 28 percent of Craigslist when the company's third shareholder, Phillip Knowlton, wanted to cash out. Many suitors came knocking, including Google, Yahoo, Salon.com, Warburg Pincus and the venture arm of Bertelsmann. Kleiner Perkins was unwilling to sign an NDA, and Google only wanted to purchase 100 percent of the company, so someone in Google's Mergers & Acquisitions department tipped off eBay's Garret Price, who initiated talks with Craigslist.
So why did Newmark and Buckmaster smooth the way for eBay to make the acquisition? Testimony in December's eBay v. Craigslist trial show it was due to Pierre Omidyar's efforts.
Meg Whitman, CEO at the time, testified that she asked Pierre Omidyar to smooth-talk Newmark after negotiations had broken down. Omidyar had cultivated an image as just-a-software-developer-who-got-lucky with philanthropic interests, and Whitman believed that would appeal to Newmark.
Apparently it did.
Like many, I was surprised in 2004 when I heard eBay had acquired a stake in the independent classifieds site. Newmark explained in a blog post, "Although I never figured that part of Craigslist might be owned by a public company, Meg Whitman and Pierre Omidyar showed that they were interested in us for all the right reasons. Like Craigslist, eBay is about helping folks get everyday stuff done, on a level playing field - they emphasize trustworthiness and reputation, and try really hard to listen to people. Basically, we're both about building community, and humanizing and democratizing the 'net, and there's gotta be more of that."
Omidyar reluctantly agreed to sit on the Craigslist board after the acquisition. That decision has now come back to bite him; first he had to testify in the eBay trial, and this week he was added as a defendant in the Craigslist trial.
A lot of information came out during testimony in the eBay v. Craigslist corporate governance trial. I was shocked at the way Josh Silverman in particular talked about the sharing of Craigslist data with eBay employees who were in charge of eBay's own classifieds business. I'll bet Newmark and Buckmaster were surprised too, given that directors have a fiduciary responsibility to the company on whose board they sit.
During the trial, I got the idea that Craigslist had assumed its data was proprietary and would only be used by eBay's Board representative in the company's dealings with Craigslist, while eBay assumed they had the right to use the data any way they pleased.
There were a lot of questions at the trial about firewalls, and about what information eBay obtained through its Board seat it could and couldn't use and share internally at eBay. Former CEO Meg Whitman testified and basically said she was above it all, assuming her employees were handling it properly.
Josh Silverman's testimony was biting - he openly expressed his contempt for Newmark and Buckmaster and their refusal to monetize Craigslist. I can't help wonder if his testimony will hurt him as he must defend himself in the next trial.
Whitman, who is running for governor of California, is not currently named as a defendant, but is named in the complaint filed on Tuesday: "Whitman, Omidyar, Silverman, and eBay's other executives and agents, knowingly and willfully conspired wrongfully to induce Craigslist to enter into the NDA, SHA and SPA based on Misrepresentations; to obtain and use Craigslist's confidential information in breach of the NDA and the SHA; and to breach fiduciary duties of care and loyalty owed to Craigslist."
The complaint goes on to allege, "In acting and failing to act as alleged herein, Whitman, Omidyar, Silverman, and other eBay agents acted or refrained from acting with oppression, fraud and/or malice as those terms are used in section 3294 of the California Civil Code."