You had to see this coming:

According to a BBC report, It appears that life at Craigslist has become even more interesting. As you may know, Craigslist has been embroiled in a legal tussle with Internet giant eBay Inc. (NASDAQ: EBAY). After purchasing a 28.4% stake in the company over a year ago, eBay now claims that Craigslist's founder Craig Newmark and its chief executive Jim Buckmaster have done things to disadvantage eBay's stake in the company. The BBC report didn't specify exactly what eBay claims Craiglist officials have done to "dilute" eBay's interests. Craigslist has now filed a counter suit against eBay, alleging illegal competition. You can get more information on eBay's original lawsuit here.

The BBC report states: "The lawsuit demands that eBay restore all shares of Craigslist owned by eBay or for the court to require eBay to divest its holdings in Craigslist." This demand is apparently supported by the premise that after acquiring its stake in Craigslist, eBay gleaned operating information from that company and then used it to launch Kijiji. Craigslist also insists that eBay, "[...] violated [Craigslist] trademarks and used misleading advertising on Google to run ads for its rival Kijiji site."

What a pretty picture of corporate raiding we have here. I think the outcome of this legal battle shall be dictated by two particular things. First, Craigslist will need to provide a first class package of documentation to support its legal counter claims. Second, it wouldn't hurt if it could find a judge who has been ripped off using eBay...

The lawsuit between Ebay (NASDAQ:EBAY) and Craigslist is just beginning and its genesis has finally come out.

The issue between the companies began when Ebay brought its classified business Kijiji into the US market a little less than a year ago. Craigslist viewed this as triggering an anti-competitive clause with Ebay, one of the online classified site's shareholders.

According to The Wall Street Journal's story on the lawsuit, "Craigslist directors held clandestine meetings in October 2007 to dilute eBay's minority stake in the online-classifieds company after eBay developed a rival offering."

It turns out that Ebay had also made an offer to buy all of Craigslist.

The merit in the lawsuit would appear to be with Craigslist. It is hard to imagine that it would stand by and let a large shareholder set up a direct competitor. It is harder to imagine why Ebay would file suit over the effort by Craigslist to protect itself.

The law may be on Ebay's side, to some extent. Craigslist did have a board meeting and set-up provisions to keep Ebay from taking a more active role. But, the morality of the situation favors Craigslist. Ebay's attempt to set up a competing business violated the "spirit" of the relationship between the two companies.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.