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eBay Admits to Using Confidential Craigslist Info to Compete

Last Updated Dec 10, 2009 9:58 AM EST

The picture emerging from the eBay-Craigslist lawsuit, currently being heard in a Delaware court, is turning out to be a lot more complex and thorny than plaintiff eBay would have liked. It now includes an admission that the auction site used confidential information it had obtained from Craigslist as an investor and one-time board member to build its own competitive classified service. And that alone could create a significant problem, should Craigslist decide to counter-sue.

Brian Levey, an eBay lawyer, admitted that the company gained information from Craigslist as a major investor with a one-time board position and then sent what it learned to its own employees that were developing the company's classifieds.
Levey, an eBay lawyer who described himself as the "legal quarterback" of the company's August 2004 acquisition of a minority interest in Craigslist, said he didn't think a confidentiality agreement precluded eBay employees from sharing confidential Craigslist information."As long as it was complying with the confidentiality agreement, I think the view was, it's fine," said Levey, who suggested that the confidentiality agreement was meant to prevent disclosure of Craigslist information to third parties.
It's actually an interesting argument. As eBay certainly wasn't a third party, did a simple confidentiality agreement prevent it from using the information itself, the way a non-compete would have? No way of telling, as I haven't seen a copy. If it didn't prevent competition using the information, that would have been pretty dumb. But even if not, eBay's actions color its accusations that Craigslist's founder and CEO were involved in "clandestine transactions designed to ensure that eBay would not be able to elect a director, and to either impose new transfer restrictions on eBay or dilute its interests, and to dilute the interests of the employee holders of company stock options." You could equally argue that the classified service was trying to defend itself from an investor that was also acting in a clandestine matter, and possibly not in good faith. At the very least that could put the former board member from eBay into some significant hot water, because you could argue that it was a violation of the person's duty to Craigslist.

Image via stock.xchng user Jasmaine Mathews, site standard license.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.