a. What was the court's ruling?
b. What does the outcome of this case demonstrate?
Defendant, craigslist, Inc., owned the most popular website in the country for classified ads. It had just two shareholders - Craig New mark and Jim Buck master -- and only 34 employees. eBay, Inc. was a publicly traded company that operated online auction sites worldwide. It employed over 16,000 people. eBay bought a minority interest in craiglist with the goal of ultimately acquiring the company or, failing that, learning the "secret sauce" of craigslist's success. It turned out, though, that craigslist and eBay was not a good match because they had entirely different cultures and approaches to business. craigslist focused on enhancing its user community, rather than maximizing its profits or expanding its business model. In contrast, eBay's primary focus was to increase profitability and market share.
Without undergoing any pre-marital discussions in which these divergent goals might have been revealed, eBay purchased 28.4% of craigslist's shares. Under the explicit terms of the deal, it had the right to compete with craigslist. Craig and Jim said that if eBay was able to offer customers a better experience, then it should be allowed to do so.
As eBay gradually realized that Craig and Jim would never sell out to them, at least in this lifetime, it launched a competing classifieds website at www.Kijiji.com. In this process, it used nonpublic information about craigslist that it garnered, without Craig and Jim's knowledge, from its relationship with the company. That "betrayal" further inflamed the situation. As other people have discovered, agreeing in theory to an open marriage is very different from experiencing it in practice. Jim and Craig were furious about eBay's foray into online classifieds. They asked for a divorce, but eBay refused to sell its stock.
Craig and Jim, in their role as directors, responded by adopting a rights plan that restricted eBay's ability to buy more shares of craigslist or sell its existing shares to third parties. They also eliminated its right to choose one board member. eBay filed suit, alleging that this rights plan violated craigslist's fiduciary rights to eBay as a minority shareholder.