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Does craigslist have a Case?

Regardless of your opinion of the ethics involved in either party’s conduct, craigslist’s case against Ebay seems to be based entirely on the fact that they feel betrayed.  There is no doubt in my mind that Ebay behaved poorly and manipulatively gained the trust of Craig Newmark and Jim Buckmaster and has been trying to stab them in the back ever since.  However that does not mean that Ebay will lose any rights they may have to acquire more of craigslist.  I’m going to attempt a layman’s analysis.  You guessed it, I’m not a lawyer – I just play one in my blog.

craigslist’s claim is that Ebay backed a cement truck over the feel-good intentions they layed out during “negotiations.”  I put “negotiations” in quotes because it appears as if craigslist had no say in what actually happened, despite the appearance that they were an actor in the talks between the former shareholder and Ebay.  This is apparent because Ebay ultimately purchased an option without the involvement of craigslist, and craigslist executed the option without objection.  At that time, craigslist was not yet comfortable with the acquisition.  Why then would they have gone along with the purchase if they actually had veto rights over the transaction?  It appears that while the former shareholder and craigslist made efforts to have an agreeable sale, that was really just out of the generosity of the former shareholder – a generosity which ultimately ran out when a multi-million dollar check was handed to him.

If I’m wrong and craigslist grudgingly went along with the sale, even with the power to stop it, then Craig and Jim were seriously hoodwinked by far more savvy professional business people.  Perhaps at the time Craig and Jim did not understand how companies, and public companies in particular, work.  Board members and executives turn over rapidly and are pushed around and out by demanding shareholders.  If the people running the show are turning down money because they made some vague oral promises to some company they invested in, shareholders will apply pressure and those executives will change course or be disposed of.  Any feel-good vibe does not mean a thing when transacting with a large company, and you believe any such vague promise at your peril.

Warren Buffet likes the saying “only invest in companies that an idiot could run, because eventually one will.”  A corollary might be, only enter into business transactions where it is still to your advantage if your partner becomes your adversary.

The craigslist motion is an interesting read, but it feels more like an appeal to good taste than a legal proceeding.  Based on that feeling, and a lack of substantial concrete violations, my intuition is that they have a weak legal case and are therefore making their case to the public.  They will succeed in temporarily getting Ebay off the board, stopping the deceptive advertising, recovering some damages, and perhaps limiting some shareholder request rights, but any economically valuable shareholder rights are unlikely to be terminated.  My sense is some powerful shareholder options are the real target here, but the private nature of the companies leave that unclear.  I have positive, but mixed feelings about craigslist and the way it is operated, but like Craig and Jim, I think an Ebay acquisition would be detrimental to the public.  Unfortunately, unless there are antitrust issues (which are extremely difficult to prove,) public interest is not the basis for decisions in these sorts of civil proceedings.

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One response to "Does craigslist have a Case?"

  1. berks county pennsylvania law March 14th, 2010 13:21 pm

    This is a great post. I’d like to read more. Hoping you do a follow up post.

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