Trial starts in Delaware today, with eBay claiming craigslist’s directors acted inappropriately in implementing governance measures designed to protect the long term mission and values of craigslist.
Separately, craigslist has filed suit in California charging eBay with unlawful and unfair competition, misappropriation of proprietary information, business interference, false advertising, phishing attacks, and breaches of fiduciary duty. This suit will proceed after the Delaware trial, but will probably not be presented to the jury until late 2011.
Delaware testimony will encompass eBay’s 2004 purchase of craigslist stock from a former shareholder. craigslist is a private company that does not publish its financial information, and eBay and craigslist both agreed that the terms of this transaction should not be made public. However, these details will now likely be subject of testimony at trial.
As a condition for its 2004 stock purchase from a former shareholder, eBay insisted on acquiring special rights over Craig’s and Jim’s shares (e.g. rights-of-first-refusal over any sale of their shares), and special rights from craigslist (e.g. veto rights over mergers and acquisitions), for which it collectively paid $16 million. This sum was distributed to craigslist’s shareholders, in part because had it not been distributed, eBay would have had a pro rata claim on any portion retained by the company, effectively paying itself for the rights it purchased. eBay’s special rights terminated in 2007, when it launched Kijiji in the US.
Also subject to testimony will be eBay’s misconduct, and abuses by eBay of its position as a shareholder of craigslist – evidence of and suspicions regarding which informed the craigslist board when the corporate governance protections in question were researched, deliberated upon, and ultimately adopted.
For additional information, please refer to craigslist’s pre-trial brief.