eBay v. Craigslist

Summary

eBay alleged that Craiglist's directors unfairly diluted eBay's 28.4 percent minority shareholder stake in Craigslist and eliminated eBay's right to appoint a director.

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Craigslist impaired eBay's stake and implemented a poison pill after eBay launched in the US a competing online classified website, kijiji.com. In a separate lawsuit filed in San Francisco, Craigslist accused eBay of using its shareholder position, which allowed eBay to appoint a director, to obtain confidential competitive information to gain an unfair commercial advantage in developing eBay's own competing online classified ad business.

Craig Newmark, founder of Craigslist, and Jim Buckmaster, Craigslist's President and CEO, were the only two members of Craigslist's board of directors, and the only shareholders (other than eBay).

On August 9, 2004, eBay became a shareholder and obtained first refusal rights and the right to appoint a director. eBay's rights were contingent upon its refraining from engaging in competitive activity. On June 29, 2007, eBay launched in the United States its own online classified advertising website, kijiji.com, and Craigslist sent a notice of Competitive Activity. eBay refused Craigslist's subseqent request to divest its shares.

Craigslist then diluted eBay's shares, which eliminated eBay's right to appoint a director, and implemented a poison pill that would prevent eBay from selling its shares to anyone other than to Craigslist. eBay commenced this lawsuit hoping to restore its position and to void the poison pill.

The eBay-Craigslist trial has testimony from Meg Whitman (eBay CEO), Pierre Omidyar (eBay Founder), Josh Silverman (Skype CEO), Craig Newmark (Craigslist Founder), Jim Buckmaster (Craigslist CEO), Garrett Price (eBay Business Development Lead), Brian Levey (eBay Counsel), and Ed Wes (Craigslist Counsel). For more information, visit the CVN Blog.

View a free video clip from the case:
Former eBay CEO, Meg Whitman, is cross-examined by attorney Catherine Dearlove -- Clip 1

Outcome

The court rescinded the Rights Plan and the ROFR/Dilutive Issuance because Jim and Craig had breached their fiduciary duties when they were implemented. The Staggered Board Amendments wasn’t rescinded because Jim and Craig had not breach their fiduciary when those were implemented. Also, the court declined to order Jim and Craig to reimburse craigslist or eBay for their attorneys’ fees.