Craigslist CEO James Buckmaster, left, followed by attorneys, arrives to testify in the civil trial between eBay and Craigslist in Delaware's Chancery Court Monday, Dec 7, 2009, in Georgetown, Del.Bradley C Bower
A battle by eBay Inc. to regain its board seat on popular U.S. classifieds website Craigslist has left both sides bloodied and bruised, yet the catfight is likely to continue even after one court trial wraps up this week.
"How do you wind up in court? How could things have evolved that poorly?" asked Colin Gillis, an analyst with Brigantine Advisors. "It's a clash of ideologies."
The stakes in the booming market for online classified ads are so high that both companies risked their reputations by spending more than a week in Delaware Chancery Court disclosing broken promises and secret payments.
Ebay paid $32-million in 2004 for a 28.4 per cent interest in Craigslist, and later launched its own rival U.S. Kijiji classified business in 2007.
The judge must consider if the threat posed by the Kijiji U.S. launch justified steps taken by Craigslist to ultimately strip eBay of a board seat and dilute its stake to 24.85 per cent. A ruling possible as early as January.
According to testimony over the past week and a half, then-eBay CEO Meg Whitman and founder Pierre Omidyar personally assured Craigslist founder Craig Newmark and Chief Executive Jim Buckmaster that they shared common values such as serving communities. Buckmaster and Newmark said they thought they were promised the relationship could be gracefully unwound if it did not work out.
The trial outcome is unpredictable in part because there is not much case law involving private companies adopting the type of protective plans used by Craigslist, said Larry Hamermesh, a professor at Widener University School of Law in Wilmington, Delaware.
"The courts in Delaware give directors considerable deference, but it's not unlimited, especially when tinkering with the efficacy of the stockholders voting power," he said.
E-mail evidence showed eBay executives focused from the start on helping their new partner make money from its business with an eye on eventually acquiring Craigslist. They mocked Newmark and Buckmaster for their "amateurish" board meetings and lack of sophistication.
Newmark and Buckmaster, meanwhile, insisted on allowing users to shape the business and unknowingly frustrated eBay's attempts to gain control of what was seen as a "rocket ship" of potential.
GREED AND NAIVETE
EBay executives were shown to widely circulate confidential Craigslist information, even including a summer intern on a distribution list, while their partner was shown to lack curiosity about eBay's intentions or operations.
"Craig and Jim frankly came off as stunningly disingenuous and more than a little naive," said Peter M. Zollman, the founder of Advanced Interactive Media Group, a consulting group in Altamonte Springs, Florida.
Newmark was pressed during the trial to explain why he insisted on keeping quiet the payment he wanted from eBay in return for special shareholder rights. Newmark and Buckmaster were each paid about $8-million as part of the $32-million eBay paid for the stake in Craigslist.
He tried to contrast himself with Omidyar, who uses body guards, given his $3-billion fortune. Newmark said he did not want to be trapped by his wealth like Omidyar who was forced to travel with "guys with things in their ears."
EBay's image also suffered, said Zollman.
"EBay operates like a business and should have understood going in that Craig and Jim were 'from another planet,"' said Zollman, borrowing a phrase used by an eBay executive to describe Craigslist staff.
For Gillis, that gets to the main point of the trial.
"Be careful who you pick as your partners. That's the overwhelming lesson for me," said Gillis. "Why don't they just sit in a room and unwind the venture? I think it's just a level of stubbornness."
On Monday, Buckmaster delivered what could be the trial's most memorable moment. He said eBay's dealmaker, Garrett Price, told him Whitman - who is running for governor of California - had an "evil" side and could be a "monster" when angered and frustrated.
Price responded in a statement that Buckmaster's comments were "false and malicious."
MORE COURT BATTLES?
Whatever the ruling, litigation is likely to continue. Craigslist has sued eBay in San Francisco, saying the larger rival used its board seat to glean confidential information about the classified ad business.
Even if eBay loses, the company goes home with a nice consolation prize.
"For a $32-million investment, they get to own even 20 per cent of a company whose value starts with a 'b' in front of it," Zollman of Advanced Interactive Media said. "Even if you don't generate short-term revenue and even if you don't have a board seat, it's not bad."
The trial takes place in Delaware, where Craigslist is incorporated, and is broadcast over Courtroom View Network .