May 6, 2013

Craigslist Takes Upstart Competitors to Court

Jerry Brito

Former Senior Research Fellow
Summary

By billing itself as a public service, Craigslist certainly put itself in a position to be at the short end of the PR stick now that it’s acting like it cares about its market dominance. Despite this hypocrisy, and despite the fact it’s using some bad legal theories to advance its claims, we shouldn’t give up on the healthy notion that if others want to displace Craigslist, they should do so by building their own user base. It’s the least one can expect from an innovator.

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Classified-ads site Craigslist is a big, fat bully. That’s the conclusion many in tech policy circles have come to after a federal court ruled last week that the company can carry on with a suit against three smaller competitors. In Craigslist’s shoes, however, you might resort to bullying, too.

The defendants—3taps, PadMapper, and Lovely—have built their businesses by using Craigslist advertisements without permission. 3taps operated Craiggers, essentially a copy of Craigslist with an alternative interface that made navigating classifieds easier. As the site’s tagline put it, “Craigslist data, better than Craigslist!” PadMapper andLive Lovely take listings and display them on maps, which also makes it easier to search and browse ads.

Many of those critical of Craigslist focus on the fact that the defendants are making Craigslist’s better by offering features the company has so far refused to offer.

In an open letter to Craigslist founder Craig Newmark, Steve Schultze of Princeton’s Center for Information Technology Policy wrote that he was “at a loss about why Craigslist is taking such a scorched earth tactic against a site that appears to help more people find Craigslist postings.” And congressional-staffer-turned-copyright-activist Derek Khanna wrote that “instead of innovating, [Craigslist] has chosen to go after new market participants that have wanted to use Craigslist’s data on classified postings.”

In some respects, Craigslist had this backlash coming because it has long branded its service as something of a for-profit non-profit not averse to sharing. The site’s icon is a hippy peace symbol, and it operates not under a “.com,” but instead a “.org” domain, which it says “symbolizes the relatively non-commercial nature, public service mission, and non-corporate culture of craigslist.” Newmark has long held that the $1 billion company is not motivated by profit. So it’s little surprise that as the company has moved to fend off competitors that use its data without permission, tech elites have developed a negative perception of Craigslist best articulated by The New York Times: “It has dug an effective moat by cultivating an exaggerated image of ‘doing good’ that keeps its customers loyal, while behind the scenes, it bullies any rivals that come near and it stifles innovation.”

Yet it’s pretty easy to see why Craigslist should care that others are building on top of and extending its service. What makes the company so valuable is its strong network effect. People go to Craigslist because that’s where the people are. If it loses that, it loses its business.

PadMapper aggregates and presents listings not just from Craigslist, but from other apartment listing sites as well, including Apartments.com and Rent.com. This is great for users because they only need go to one site to browse all the listings across multiple databases. It’s bad for Craigslist, however, because it makes it less of a focal site. Such aggregators make it less important that an apartment be listed at Craigslist specifically as long as it is in the aggregated list.

PadMapper also offers listings of its own listings through its PadLister service. This means that PadMapper relies on the network effects that Craigslist has developed in order to draw in an audience, and then promotes and sells its own listing service to that audience. While that business model is certainly innovative, and may not violate copyright, it doesn’t sit well, either.

Craigslist disrupted the newspaper industry by decimating traditional classifieds. It did this by offering a better alternative to its competitors that attracted consumers away from newspapers. Craigslist didn’t copy newspaper ads to jumpstart its operation, just as Facebook didn’t jumpstart its network by copying over MySpace accounts. That’s true innovation: taking command of the network effect by offering a superior product. So shouldn’t we expect the same from new entrants in the classifieds space?

Some don’t think so. 3taps, for example, is pretty clear that it thinks data about classified ads should be “public property.” In several white papers that do violence to economics the company proposes a “data commons” and also calls for “exchange neutrality,” the idea that sites like eBay, Craigslist, Monster.com, and Match.com would have to make their users postings available for anyone else to take and use on their own sites because “[s]ociety at large, not just a few, should benefit from the coming breakthroughs in availability of exchange-related information.” It’s not clear what incentive new or existing posting services would have to operate or innovate if they were forced to give up any possibility of exclusive use of data.

This is not to say that Craigslist’s claims in court are all correct. The company should fail on its copyright claims. For one thing, a site like PadMapper only copies facts about a listing (i.e. 3 bedrooms, 800 sq. ft., $2,000 a month, etc.), and mere facts are not subject to copyright. Additionally, as the court ruled last week, in order to exclude others Craigslist would need an exclusive license to listings from its users, a high bar that it likely hasn’t met and can probably never meet. Additionally, Craigslist brought actions under the Computer Fraud and Abuse Act. This is problematic because, if successful, the charge would equate with hacking some common practices of many Internet users, such as using proxy servers.

It’s unfortunate that Craigslist has sought to rely on such claims to protect itself, but one can understand why it might have thrown the kitchen sink into its lawsuit. The common law legal theories otherwise available to it, like trespass to chattels and misappropriation, are controversial and somewhat untested in the Internet space. Perhaps this will be the case to flesh them out.

By billing itself as a public service, Craigslist certainly put itself in a position to be at the short end of the PR stick now that it’s acting like it cares about its market dominance. Despite this hypocrisy, and despite the fact it’s using some bad legal theories to advance its claims, we shouldn’t give up on the healthy notion that if others want to displace Craigslist, they should do so by building their own user base. It’s the least one can expect from an innovator.