Lawsuits pitting the online classified and e-commerce giants should make prospective partners think hard before seating a rival on the boardFrenemies be afraid. Alliances with would-be competitors can be perilous. Nowhere in techdom is that clearer than in the battle now brewing between e-commerce giant eBay (EBAY) and classified site Craigslist. Fallout from the companies' legal dispute could serve as an object lesson for other tech companies considering teaming up with a rival.
Lawsuits between the two companies relate to eBay's half-decade-old investment in Craigslist and the ill will that ensued as eBay's changing business focus brought it into closer competition with the smaller ally. A host of tech companies—including Microsoft (MSFT), Yahoo! (YHOO), Google (GOOG), and News Corp.'s (NWS) MySpace—are engaged in or considering their own partnerships with potential competitors. No two pairings are the same, but legal experts close to all the players will no doubt be on the lookout for any parallels in the eBay-Craigslist contretemps.
The suits raise legal questions that all competitive partners may someday face: Can a company executive hold a seat on a rival's board? And what recourse does a company have when it believes an investor is using information gleaned from a board position to bolster a competing business? "You would certainly want to be very careful when you are on the board of a company you could compete with," says Kathryn Deimer, a partner at San Jose-based law firm Deimer, Whitman & Cardosi, which specializes in business litigation and business breakups.
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