By Tom Hals and Alexandria Sage
GEORGETOWN, Delaware/SAN FRANCISCO (Reuters) - EBAY (EBAY.NQ)Inc's former chief executive, Meg Whitman, took the witness stand on Monday to make the case that free online classifieds provider Craigslist unfairly denied the giant e-commerce company a seat on its board.
Whitman, who is running for governor of California, said eBay had bought shares of Craigslist from disgruntled shareholder Philip Knowlton in 2004 in the hope of ultimately owning the company outright and keeping competitors at bay.
"We were very interested in making an acquisition of Craigslist and we would have loved to have bought the whole thing," Whitman said, testifying in a small Delaware courtroom with about 20 people. "But we understood early on that was not going to be possible, at least early on."
Whitman said eBay paid $32 million for its stake in Craigslist -- $16 million to Knowlton and $8 million each to Craigslist co-founder Craig Newmark and CEO Jim Buckmaster in exchange for special rights that included an ability to block the issuance of new shares.
EBay sought to have a "collaborative" relationship with Newmark and Buckmaster -- and be a "good partner," she added.
"We knew there was no path to control unless they sold us the shares," said Whitman.
EBay claimed in court documents that Newmark and Buckmaster hatched a "coercive plan" to dilute eBay's ownership stake to under 25 percent, ultimately stripping eBay of its seat on Craigslist board.
Craigslist has hit back that eBay used its board seat to glean information to launch its own classified site, Kijiji. Craigslist also claims that eBay used deceptive tactics to direct traffic away from its site.
EBay first sued Craigslist in Delaware in April 2008, but Craigslist a month later filed a lawsuit over the same issues in San Francisco.
WHITMAN ON STAND
Craigslist claims that after eBay's 2004 purchase of shares, Whitman maintained Craigslist would become eBay's "play in classifieds."
Craigslist said eBay never revealed that it was developing its own classified site, Kijiji, which it launched internationally in 2005 and in the United States in 2007.
Whitman, appearing calm and confident under cross examination, said eBay had an ambitious vision for an international classifieds business. She said she did not initially reveal a plan to buy a Dutch classifieds site Marktplaats to Craigslist because the deal had not yet closed.
Under cross-examination, Whitman said she was aware that eBay would have to give up some of the special rights it had purchased from Buckmaster and Newmark, however, when eBay launched a U.S. version of Kijiji that included job listings.
Whitman spent three hours detailing the negotiations that led to eBay's investment in Craigslist and eventual falling out.
The founders of Craigslist and eBay, Newmark and Pierre Omidyar, will also be called to give their accounts.
EBay, one of the high-flyers in the dot-com boom, pioneered online auctions and spurred millions of people around the world to sell and buy on the Web.
Despite generating $8.5 billion of revenue in 2008 and employing thousands of people, the San Jose-based company has been forced to broaden its market to better compete and expand beyond its traditional online auctions.
In contrast, privately held Craigslist, with only a few dozen employees, is now the top U.S. online classifieds site, beloved for its mostly free service to help people find homes, adopt pets or sell junk from their garages.
The feud between the parties hinges on eBay's minority stake in Craigslist. EBay accuses Craigslist of illegally cutting that ownership stake to 24.85 percent from 28.4 percent, causing eBay to lose its seat on Craigslist's board.
EBay Chief Executive John Donahoe said during an investor conference on Monday that "the simple truth is we own 28 percent of Craigslist."
The trial, which could last about a week, is being broadcast over Courtroom View Network.
The case is eBay Domestic Holdings Inc v Newmark, et al, Delaware Chancery Court, No. 3705-CC.
(Additional reporting by Alexandria Sage in San Francisco and Phil Wahba in New York; Editing by Tim Dobbyn)
