eBay Domestic Holdings, Inc. v. Newmark

OPINION

On June 29, 2007, eBay launched the online classifieds site www.Kijiji.com in the United States. eBay designed Kijiji to compete with www.craigslist.org, the most widely used online classifieds site in the United States, which is owned and operated by craigslist, Inc. (“craigslist” or “the Company”). At the time of Kijiji’s launch, eBay owned 28.4% of craigslist and was one of only three craigslist stockholders. The other two stockholders were Craig Newmark (“Craig”) and James Buckmas-ter (“Jim”), 1 who together own a majority of craigslist’s shares and dominate the craigslist board. eBay purchased its stake in craigslist in August 2004 pursuant to the terms of a stockholders’ agreement between Jim, Craig, craigslist, and eBay that expressly permits eBay to compete with craigslist in the online classifieds arena. Under the stockholders’ agreement, when eBay chose to compete with craigslist by launching Kijiji, eBay lost certain contractual consent rights that gave eBay the right to approve or disapprove of a variety of corporate actions at craigslist. Another consequence of eBay’s choice to compete with craigslist, however, was that the craigslist shares eBay owns were freed of the right of first refusal Jim and Craig had held over the shares, and the shares became freely transferable.

Notwithstanding eBay’s express right to compete, Jim and Craig were not enthusiastic about eBay’s foray into online classifieds. Accordingly, they asked eBay to sell its stake in craigslist, indicating a preference that eBay either sell its craigslist shares back to the Company or to a third party who would be compatible with Jim, Craig, and craigslist’s unique corporate culture. When eBay refused to sell, Jim and Craig deliberated with outside counsel for six months about how to respond. Finally, on January 1, 2008, Jim and Craig, acting in their capacity as directors, responded by (1) adopting a rights plan that restricted eBay from purchasing additional craigslist shares and hampered eBay’s ability to freely sell the craigslist shares it owned to third parties, (2) implementing a staggered board that made it impossible for eBay to unilaterally elect a director to the craigslist board, and (3) seeking to obtain a right of first refusal in craigslist’s favor over the craigslist shares eBay owns by offering to issue one new share of craig-slist stock in exchange for every five shares over which any craigslist stockholder granted a right of first refusal in craig-slist’s favor. As to the third measure, Jim and Craig accepted the right of first refus *7 al offer in their capacity as craigslist stockholders and received new shares; eBay, however, declined the offer, did not receive new shares, and had its ownership in craigslist diluted from 28.4% to 24.9%.

eBay filed this action challenging all three measures on April 22, 2008. eBay asserts that, in approving and implementing each measure, Jim and Craig, as directors and controlling stockholders, breached the fiduciary duties they owe to eBay as a minority stockholder of the corporation. After lengthy discovery and pre-trial motion practice, the Court held an extensive nine-day trial from December 7, 2009 to December 17, 2009. During trial, the parties examined nine live witnesses, offered seven witnesses by deposition, and presented over one thousand exhibits. The parties completed post-trial briefing on May 14, 2010. I conclude that Jim and Craig breached the fiduciary duties they owe to eBay by adopting the rights plan and by making the right of first refusal offer. I order rescission of these two measures. I also conclude that Jim and Craig did not breach the fiduciary duties they owe to eBay by implementing a staggered board. Accordingly, I leave that measure undisturbed, and craigslist may continue to operate with a staggered board.

I. FACTS

Since the time the parties completed their post-trial briefing, I have examined carefully the briefs, exhibits, deposition testimony and trial transcript. I have also reflected at length on my observations of witness testimony during trial, including my impressions regarding the credibility and demeanor of each witness. The following are my findings of the relevant facts in this dispute, based on evidence introduced at trial and my post-trial review. 2

A. Oil and Water

In 1995, two individuals in northern California began to develop modest ideas that would take hold in cyberspace and grow to become household names. Craig New-mark, founder of craigslist, started an email list for San Francisco events that in time has morphed into the most-used classifieds site in the United States. Pierre Omidyar, founder of eBay, Inc., started an online auction system that has grown to become one of the largest auction and shopping websites in the United States. As they grew, both companies expanded overseas and established a presence in international markets.

Now, even though both companies enjoy household-name status, craigslist and eBay are, to put it mildly, different animals. Indeed, the two companies are a study in contrasts, with different business strategies, different cultures, and different perspectives on what it means to run a successful business. It is curious these two companies ever formed a business relationship. Each, however, felt it had something to offer to and gain from the other. Thus, *8 despite all differences, eBay and craigslist formed a relationship. 3

The dissimilarities between these two companies drive this dispute, so I will spend a moment discussing them. I will begin with craigslist. Though a for-profit concern, craigslist largely operates its business as a community service. Nearly all classified advertisements are placed on craigslist free of charge. Moreover, craig-slist does not sell advertising space on its website to third parties. Nor does craig-slist advertise or otherwise market its services, craigslist’s revenue stream consists solely of fees for online job postings in certain cities and apartment listings in New York City. 4

Despite ubiquitous name recognition, craigslist operates as a small business. It is headquartered in an old Victorian house in a residential San Francisco neighborhood. It employs approximately thirty-four employees. It is privately held and has never been owned by more than three stockholders at a time. It is not subject to the reporting requirements of federal securities laws, and its financial statements are not in the public domain. It keeps its internal business data, such as detailed site metrics, confidential. 5

Almost since its inception, the craigslist website has maintained the same consistent look and simple functionality. Classified categories the site offers are broad (for example, antiques, personal ads, music gigs, and legal services), but craigslist has largely kept its focus on the classifieds business. It has not forayed into ventures beyond its core competency in classifieds, craigslist’s management team — consisting principally of defendants Jim, CEO and President of craigslist, and Craig, Chairman and Secretary of the craigslist board — is committed to this community-service approach to doing business. They believe this approach is the heart of craig-slist’s business. 6 For most of its history, craigslist has not focused on “monetizing” its site. The relatively small amount of monetization craigslist has pursued (for select job postings and apartment listings) does not approach what many craigslist competitors would consider an optimal or even minimally acceptable level. Nevertheless, craigslist’s unique business strategy continues to be successful, even if it does run counter to the strategies used by the titans of online commerce. Thus far, no competing site has been able to dislodge craigslist from its perch atop the pile of most-used online classifieds sites in the United States, craigslist’s lead position is made more enigmatic by the fact that it maintains its dominant market position with small-scale physical and human capital. Perhaps the most mysterious thing about craigslist’s continued success is the fact that craigslist does not expend any great effort seeking to maximize its profits or to monitor its competition or its market share.

*9 Now to eBay. Initially a ventare with humble beginnings, eBay has grown to be a global enterprise. eBay is a for-profit concern that operates its business with an eye to maximizing revenues, profits, and market share. Sellers who use eBay’s site pay eBay a commission on each sale. These commissions formed the initial revenue stream for eBay, and they continue to be an important source of revenue today. Over the years eBay has tapped other revenue sources, expanding its product and service offerings both internally and through acquisitions of online companies such as PayPal, Skype, Half.com, and Rent.com. eBay advertises its services and actively seeks to drive web traffic to its sites. It has a large management team and a formal management structure. It employs over 16,000 people at multiple locations around the world. It actively monitors its competitive market position. Its shares trade on the NASDAQ. It maintains a constant focus on monetization, turning online products and services into revenue streams. In terms of business objectives, eBay is vastly different from craigslist; eBay focuses on generating income from each of the products and services it offers rather than from only a small subset of services. It might be said that “eBay” is a moniker for monetization, and that “craigslist” is anything but.

B. The Knowlton Crisis

Consistent with its ongoing interest in exploring new profit opportunities, eBay officially ventured into the online classifieds business in January 2004 when it acquired mobile.de, a leading classifieds site in Germany that specializes in selling automobiles. Concurrent with its purchase of mobile.de, eBay embarked on a detailed review of other classifieds opportunities around the world. Around the same time, craigslist was wading through an internal crisis with a stockholder named Phillip Knowlton that would ultimately lead eBay further into the classifieds arena by way of an investment in craigslist.

Knowlton was one of only three craig-slist stockholders. He also sat on the craigslist board of directors. The other two stockholders at the time were Jim and Craig, who were also directors. In 2002, Knowlton began demanding that craigslist seek increased profits by monetizing more of its website. Jim and Craig resisted this idea for a considerable time. Eventually, Knowlton began to use his shares as leverage to effect change at craigslist. For example, in July 2003, Knowlton had his attorney send a letter to Jim and Craig outlining a number of “business alternatives” Knowlton might pursue if Jim and Craig did not follow his advice about monetization, including an alternative Knowlton characterized as “[n]on-[f]riendly-[p]ersuasion,” which involved selling his minority interest to a competitor. 7 Jim, Craig, and craigslist’s outside counsel viewed this as a threat to “convey the shares to parties that would have as [their] goal the destruction of [craigslist].” 8

I will not take the time to elaborate on the back and forth that took place between Knowlton, Jim, and Craig during this dispute over monetization. Suffice it to say that by late 2003 Knowlton had begun actively shopping his shares. When that shopping began, Jim felt it was his duty as CEO to meet with potential suitors and share information about craigslist. When *10 meeting with suitors, Jim typically required them to sign nondisclosure agreements that would protect craigslist’s financial and other nonpublic information. Jim met with a number of suitors, including Google, Warburg Pincus, Yahoo!, and salon.com. The theme of the meetings was that Jim and Craig were not interested in selling their own shares but that they were both willing to accommodate a sale of Knowlton’s shares.

In early 2004, eBay learned that Knowl-ton’s shares were in play and quickly approached Knowlton expressing interest. After negotiations, eBay tentatively inked a deal to acquire Knowlton’s shares for $15 million, signing a letter of intent to that effect on May 7, 2004. Wanting to “go through the front door” with its investment in craigslist, eBay also involved Jim and Craig in negotiations over its purchase of Knowlton’s shares. 9 Thus, after the letter of intent was signed, threeway negotiations ensued, with all parties represented by counsel. During these negotiations eBay carried on a sort of shuttle diplomacy between Knowlton, on the one hand, and Jim and Craig, on the other, and also negotiated its own position.

eBay’s hope at this juncture was that the “Knowlton Crisis” might provide an opportunity to acquire not only Knowl-ton’s shares but also Jim and Craig’s shares, thereby minting craigslist the newest member of the eBay family of companies. eBay executive Garrett Price was a principle negotiator for eBay. During negotiations, he “repeatedly and incessantly” explained that eBay was interested in acquiring a larger stake than Knowlton had to offer. 10 It soon became clear, however, that Jim and Craig were not interested in relinquishing any of their shares. eBay’s push for a greater equity stake eventually resulted in Jim and Craig breaking off negotiations. When that happened, eBay asked craig-slist representatives to meet with Meg Whitman, eBay’s CEO. They did so on July 22, 2004. In that meeting Whitman assured Jim and Craig that eBay would be content with a minority interest in craigslist.

At an early stage of the negotiations, Jim and Craig learned that Knowlton was to receive $15 million for his shares. Upon receiving this revelation, Craig explained in an email to craigslist’s outside counsel that he was “definitely not interested in seeing the dumb guy [Knowlton] get that figure.” 11 As negotiations progressed, eBay came to believe that Jim and Craig wanted to be paid whatever Knowlton was paid before they would agree to the eBay investment. 12 As is common practice before making a minority investment in a closely held corporation, eBay was negotiating for certain rights to protect its investment. Brian Levey, eBay’s in-house counsel, expressed in an email his understanding that Jim and Craig wanted to “receive some form of compensation for agreeing to [the] investor protections” eBay was negotiating for itself, “whether from [Knowlton’s] proceeds on his stock sale to [eBay] or from [eBay] directly.” 13 eBay believed that Jim and Craig viewed a straight payment to Knowlton for his shares as giving Knowlton “100% of the *11 financial benefits of any stock sale, while [Jim and Craig] are giving up important investor rights without corresponding compensation.” 14

C. The eBay Investment

After three months of negotiations, eBay ultimately agreed to pay $32 million for Knowlton’s shares. Knowlton received $16 million of that amount, and Jim and Craig each received $8 million. 15 eBay completed the purchase of Knowlton’s shares on August 10, 2004. Since then, craigslist has been owned by Craig, Jim, and eBay. After eBay’s investment, Craig owned 42.6% of craigslist, Jim owned 29% of craigslist, and eBay owned 28.4% of craigslist. The terms of eBay’s investment in craigslist were set out in a stock purchase agreement (the “SPA”) and a stockholders’ agreement (the “Shareholders’ Agreement”), both dated August 9, 2004. Jim and Craig also executed a voting agreement (the “Jim-Craig Voting Agreement”) the same day. These agreements play a role in this dispute. 16 Accordingly, I will set forth the salient provisions of each, beginning with the SPA.

There are five parties to the SPA: eBay, Inc.; eBay Holdings, Inc.; 1010 Cole Street, Inc.; Jim; and Craig. eBay Holdings is a wholly owned subsidiary of eBay, Inc., formed for the specific purpose of acquiring and holding Knowlton’s shares. 17 eBay, Inc. and eBay Holdings are both Delaware corporations. 1010 Cole Street was a California corporation and the predecessor to craigslist, a Delaware corporation. Section 6.18 of the SPA required eBay to assist as needed in changing 1010 Cole Street’s corporate domicile from California to Delaware, including approving a new charter for craigslist. A proviso of § 6.18 stated that the “reincorporation shall not result in a material change in [eBay’s] rights as a shareholder of [craig-slist].”

craigslist’s new charter provided for a three-person board of directors to be elected under a cumulative voting regime. The mechanics of cumulative voting ensured that eBay could use its 28.4% stake in craigslist to unilaterally elect one of the three members to the craigslist board.

I will now explain the Shareholders’ Agreement. The same five parties that signed the SPA signed the Shareholders’ Agreement, which contains the lion’s share of contractual provisions the parties focus on in this dispute. The Shareholders’ Agreement sets forth (1) eBay’s confidentiality obligations as a craigslist stockholder; (2) eBay’s right to consent to certain Company transactions; (3) numerous transfer restrictions on the craigslist shares owned by Craig, Jim, and eBay; (4) eBay’s right to compete with craigslist *12 subject to certain consequences; and, most importantly, (5) the consequences (i.e., changes in the rights and obligations of the parties) that will ensue should eBay decide to compete with craigslist. Each of these provisions deserves a little unpacking.

Section 4.3 of the Shareholders’ Agreement requires eBay to treat confidential craigslist information with the same degree of care eBay affords its own confidential information. Section 4.3 also limits how eBay may use craigslist’s confidential information. Specifically, eBay Holdings (the shell entity that acquired craigslist’s shares) is permitted to share confidential information with its subsidiaries, outside advisors, or eBay, Inc. “for the purpose of evaluating [eBay Holdings’] investment in [craigslist].” 18 Before sharing confidential information, eBay Holdings must obtain a written agreement from any subsidiary, advisor, or eBay, Inc., that they will abide by the confidentiality obligations in § 4.3.

Section 4.6(a) of the Shareholders’ Agreement gives eBay the right to consent to certain transactions craigslist might enter into. The important consent rights provided eBay by § 4.6(a) include the right to consent to (1) any amendment to the craig-slist charter “that adversely affects [eBay],” 19 (2) any increase or decrease in the authorized number of shares of craig-slist stock, 20 (3) the adoption of any agreement between craigslist and its officers or directors providing for the issuance of stock, 21 and (4) declarations of dividends. 22 Effectively, Section 4.6(a) gives eBay a veto over a host of possible transactions even though its minority interest would not otherwise have permitted eBay to prevent actions that required a stockholder vote (e.g., a proposed amendment to the craigslist charter) or to influence actions typically left to the discretion of the board (e.g., dividend declarations).

Section 2.1 of the Shareholders’ Agreement requires eBay, Jim, and Craig to comply with certain transfer restrictions in the Shareholders’ Agreement when transferring their craigslist shares. The transfer restrictions are found in § 5.1 (preemptive rights) and in §§ 6.2 and 7.2 (rights of first refusal) of the Shareholders’ Agreement. The preemptive rights give eBay, Jim, and Craig the right to purchase enough shares in a new issuance of craig-slist stock to maintain them respective ownership percentages. The rights of first refusal give eBay, Jim, and Craig first dibs on the purchase of each other’s shares should any one of them wish to sell to a third party, provided they match the purchase price and other terms offered by the third party.

In negotiations, eBay strove to maintain full leeway to compete with craigslist in online classifieds even after acquiring a minority interest. eBay believed it was critical to preserve the right to compete, so much so that it likely would not have invested in craigslist without this right. 23 *13 Ultimately, eBay did not obtain an entirely unfettered ability to compete; the Shareholders’ Agreement does expressly and unequivocally permit eBay to compete but guarantees certain consequences should eBay do so. 24 Interestingly, what craigslist considers “competition” is quite narrow. The Shareholders’ Agreement defines “Competitive Activity” as “the business of providing an Internet posting board containing specific categories for the listing by employers and recruiters of available jobs and posting of resumes by job seekers anywhere in the United States.” 25 Section 8.3(e) provides that if eBay launches an online job posting site in the United States, craigslist may issue a notice to eBay that eBay has engaged in Competitive Activity. If eBay fails to cure within ninety days, eBay loses (1) its consent rights, (2) its preemptive rights over the issuance of new shares, and (3) its rights of first refusal over Jim and Craig’s shares. Concomitantly, however, eBay is freed of the rights of first refusal Jim and Craig hold over eBay’s shares in craigslist, making those shares freely transferable. eBay’s confidentiality obligations remain firmly in place. The Shareholders’ Agreement states that the change in rights and obligations specified by § 8.3 “shall be the sole remedy for any action brought by [craigslist] against [eBay] ... that may arise from or as a result of [eBay] ... engaging in Competitive Activity[.]” 26

Finally, I discuss the Jim-Craig Voting Agreement. The Jim-Craig Voting Agreement is an agreement between Jim and Craig, in their capacities as stockholders, that spells out how Jim and Craig will vote their shares in director elections. Specifically, the Jim-Craig Voting Agreement requires Jim and Craig to vote their shares “so as to elect one [ ] representative designated by Jim ... and one [ ] representative designated by Craig, as members of [craigslist’s] Board of Directors[.]” 27 Given that craigslist was to have a three-director board after eBay’s investment, the Jim-Craig Voting Agreement ensured that two out of the three director positions would be filled by Jim’s and Craig’s desig-nees, who have always been Jim and Craig. The third position would be filled by eBay — not by contractual right, but by the laws of mathematics under a cumulative voting system with a non-staggered board. 28

*14 D. eBay as a craigslist Stockholder

During the period leading up to eBay’s investment, Omidyar met with Craig, founder-to-founder, regarding eBay’s potential investment in craigslist. By that time, Omidyar had not been involved in the day-to-day management of eBay for many years, but he remained Chairman of the eBay board of directors. The meeting was largely a relationship-building endeavor. Omidyar came away with the impression that Craig was “a very, very bright guy,” 29 even if one with “a rather unique user interface.” 30 The rapport between Omid-yar and Craig ultimately led eBay management to encourage Omidyar to fill the third seat on craigslist’s board once eBay had made its investment. After thinking it over, Omidyar decided to join the board, viewing his role as “facilitating the relationship ... between craigslist and eBay, help[ing] craigslist see the value of having eBay as a partner, and ultimately [getting] that relationship ... closer and closer so that [eBay] would end up in an acquisition[.]” 31 Omidyar understood that the “long-term plan” was for eBay to acquire craigslist. 32 Not willing to place all then-hopes in a single plan, however, eBay executives calculated that the eBay-craigslist relationship would at least provide them with an opportunity to learn the “secret sauce” of craigslist’s success, presumably so that eBay could spread that sauce all over its own competing classifieds site. 33

The first craigslist board meeting Omid-yar attended was on February 1, 2005. By then, eBay had established its own footholds in the online classifieds arena internationally, independent of craigslist. For example, eBay had purchased mobile.de in Germany and Marktplaats in the Netherlands and was negotiating the acquisition of Gumtree in the United Kingdom. eBay was also in the latter stages of developing P168, a software platform it hoped would form the basis of all of its international classifieds sites. Price prepared a presentation for the February 1 craigslist board meeting that he forwarded to Jim, Craig, and Omidyar. The presentation outlined goals for the eBay-craigslist relationship. The first page of the presentation unabashedly proclaimed: “eBay has successfully followed a strategy of working extremely close with affiliates on their path to becoming wholly-owned subsidiaries of eBay, Inc.” 34 The balance of the presentation contained information on the potential for an international eBay-craigslist partnership, including such lofty statements as “craigslist and eBay should act as members of one family to leverage their respective strengths and better serve their combined communities” 35 and “[i]t is critical to the craigslist-eBay relationship that eBay DNA becomes a part of craigslist and vice-versa.” 36 A briefing memorandum given to Omidyar and Whitman 37 specified that eBay’s goal was to make Jim and Craig *15 understand that eBay felt a sense of urgency to capitalize on international classifieds opportunities and that craigslist and eBay needed to “get on the same page ASAP.” 38 Perhaps because eBay recognized that its presentation would receive a cool response from Jim and Craig — particularly the part about craigslist becoming a wholly owned eBay subsidiary — the briefing memorandum cautioned Whitman to use discretion “regarding [any] attempt to obtain clarity on path to control.” 39

Omidyar’s expectation going into the February 1, 2005 board meeting was that he would be treated as a potential partner, one who could impart wisdom from his own experiences with eBay to help craig-slist improve its domestic business and sally forth (with eBay) into the new world of international classifieds. To that end, Omidyar came to the meeting offering to deploy eBay’s resources to help craigslist improve trust and safety issues on the craigslist site and find new office space for craigslist, among other things. Omidyar also raised the possibility of an international eBay-craigslist partnership. Jim and Craig’s responses to Omidyar’s suggestions curbed whatever enthusiasm Om-idyar had going into the meeting. Omid-yar came away feeling that Jim and Craig “rebuffed” his suggestions and that the eBay-craigslist relationship was not as close as he had envisioned it would be. 40 All in all, the February 1 board meeting was not a blazing start to the eBay-craig-slist relationship.

Perplexed at having been “treated more as an outsider than a potential partner,” Omidyar looked to Price to determine “what the heck [was] going on.” 41 Price then sent Jim an email ahead of the next craigslist board meeting scheduled for March 28, 2005, requesting that Jim and Craig provide a “relationship update” at the meeting. Price explained that Omid-yar was interested in Jim and Craig’s “motivations for taking the investment from eBay, what [they] expected to gain from it, and how [they] would like to see it work going forward.” 42 At the March 28 meeting, Jim and Craig provided the board with a summary of their view of the eBay-craigslist relationship. Among Jim and Craig’s expectations were the following: (1) eBay would show appreciation for craigslist’s unique mission and philosophy, (2) eBay would be content with a minority equity stake and a three-year “getting to know you” period, 43 and (3) craigslist was to be eBay’s primary interest in online classifieds. 44 After this second meeting, Omidyar felt that the expectations of eBay were severely disconnected from the expectations of Jim and Craig. He also believed his advice would not be well-received by Jim and Craig and, therefore, he eventually resigned as a craigslist director in November 2005.

The February 1 and March 28, 2005 craigslist board meetings reflect that the eBay-craigslist relationship was marred by inconsistent expectations from the beginning. eBay wanted to acquire craigslist, *16 and many eBay executives believed an acquisition was inevitable. Along the path to control, eBay hoped to combine the resources of the two companies to capitalize on international classifieds opportunities. During the first year of eBay’s investment, eBay proposed at least three separate international joint ventures to craigslist, none of which materialized. eBay had also determined that if craigslist would not accompany it into the international classifieds arena, eBay was willing to delve into an international online classifieds business alone, hopefully using the “secret sauce” it learned from craigslist. Hence, even while eBay was proposing international partnerships to craigslist, eBay was independently building its own international portfolio of online classifieds sites.

Because Jim and Craig’s éxpectations of the eBay-craigslist relationship diverged so sharply from eBay’s, eBay’s efforts to influence the direction of craigslist and to increase its craigslist holdings bore little fruit. Jim and Craig were typically slow to respond (or were entirely unresponsive) to eBay’s suggestions. They did not implement most of eBay’s ideas domestically and ultimately declined to partner with eBay on an international venture.

The stunted development of the eBay-craigslist relationship appears to have been driven in part by the oil-and-water nature of the two companies and in part by an antitrust investigation launched by the New York Attorney General’s office (the “NYAG”) shortly after eBay’s investment in craigslist. As to the disparate nature of the two companies, eBay’s goal was always to capitalize on the “tremendous untapped monetization potential” 45 of craigslist, but craigslist’s goal was to grow its business by continuing along its (primarily) free-listings trajectory. Jim and Craig ultimately controlled the direction craigslist would take because they collectively owned the controlling block of craigslist shares and occupied two of the three board seats. eBay’s ability to affirmatively influence craigslist was limited to the persuasion that might be achieved by the one director eBay was able to elect to the board. 46 By and large, Jim and Craig simply did not wish to go along with eBay’s plans for craigslist, and they ignored most of eBay’s overtures and suggestions.

The NYAG investigation also caused the eBay-craigslist relationship to stagnate. Apparently, the NYAG had antitrust concerns regarding § 8.3 of the Shareholders’ Agreement, the provision dealing with eBay’s right to compete with craigslist. During the investigation, eBay’s outside counsel wrote a letter to the NYAG explaining that the Shareholders’ Agreement was not an unlawful non-compete agreement implicating anti-trust concerns because it was not a non-compete agreement at all. The letter explained that if eBay engaged in Competitive Activity, “it [would] lose various shareholder rights, such as a board seat, approval of certain transactions, and right of first refusal on future stock issuances.” 47 The letter further explained that the loss of these rights was not intended to dissuade eBay from competing but rather to protect craigslist’s “competitively sensitive information and its business in the event eBay becomes a corn- *17 petitor....” 48 Notwithstanding these reassurances, the NYAG continued its investigation and issued a subpoena to craigslist seeking company records. When craigslist received the subpoena, Jim and Craig decided not to pursue a partnership with eBay, fearing it would create additional antitrust fodder for the NYAG.

E. Kijiji and craigslist’s Nonpublic Information

While eBay was attempting to form an international venture with craigslist, it was also forging ahead in foreign territories on its own. eBay had already begun acquiring international classifieds sites. In March 2005, shortly after Omidyar’s first attendance at a craigslist board meeting, eBay deployed P168 internationally, naming the site Kijiji. Although it is different in appearance than craigslist’s site, Kijiji offered a similar free classifieds service with a broad selection of categories. Following Kijiji’s unveiling, eBay expanded Kijiji to service countries throughout Europe and Asia and even launched a site in Canada.

After Omidyar resigned from the craig-slist board, eBay appointed Joshua Silver-man to replace him. Silverman had been responsible for leading the launch of eBay’s European Classifieds Businesses, including Kijiji. He had hired the founding Kijiji teams and helped develop marketing plans and budgets for Kijiji.

Evidence introduced at trial suggests that the development of P168 — as well as Kijiji, the site it spawned — was aided by nonpublic craigslist information that eBay had access to by virtue of eBay’s minority investment and board seat. Evidence also suggests that, after launching Kijiji, eBay used craigslist’s nonpublic information to expand Kijiji’s reach and that eBay passed craigslist’s nonpublic information around internally in a liberal fashion. For example, in October 2004, shortly after eBay purchased Knowlton’s shares, Price asked Jim for access to nonpublic craigslist site metrics. This information was sent to eBay employee Erik Hansen, who had Price request it because he felt it would “be very helpful to plan our [i.e., P168’s] capacity needs.” 49 Around this time Sil-verman also used the craigslist due diligence data eBay had obtained before purchasing Knowlton’s shares to take a “stab at initial projections and success metrics” for eBay’s international classifieds business. 50 Silverman then shared those projections with Price. In June 2006, after Silverman became a craigslist director, he instructed eBay’s accounting department to forward craigslist’s nonpublic financial statements to Randy Ching, the eBay employee with global responsibility for Kiji-ji. 51 Ching continued to receive craigslist financials periodically until Jacob Aqraou succeeded him, at which point Ching forwarded craigslist financials to Aqraou, the eBay executive who would be responsible *18 for Kijiji’s launch in the United States. On March 12, 2007, Levey forwarded craigslist financials from 2004 to 2007 to Aqraou and his Kijiji launch team. Levey understood that this information would be used to determine whether it would be profitable to launch Kijiji in the United States. 52 Two days later, on March 14, 2007, Silverman and Levey attended a craigslist board meeting and received hard copies of craigslist’s 2007 budget. After this meeting, Levey returned to his office and forwarded the budget information to eBay employee Pat Kolek saying, “Here are the numbers for [cjraigslist’s 2007 financial plan. Look at all that cash! Please pass along to whomever on a need-to-know basis. Thx!” 53 In April 2007, eBay employee Martin Herbst used craig-slist’s 2007 budget in an “analysis on CL revenue” to determine “how much they make in AdSense in the cities that they charge listing fees ... [to] maybe giv[e] [eBay] a better sense of what Kijiji’s potential could be if [it] got to similar penetration rates in [its] markets....” 54 Neither Jim nor Craig knew that craigslist’s nonpublic site metrics or financial information had been forwarded to eBay employees working on P168 or Kijiji.

Apart from the use of nonpublic craig-slist information, evidence introduced at trial also suggests that eBay employed a practice known as “scraping” to obtain data from craigslist’s website. “Scraping” in the Internet context refers to the (typically automated) process of remotely extracting data from a third-party website. On several occasions before and after eBay purchased Knowlton’s shares, eBay used a third-party service to scrape craigslist’s site. 55 Jim and Craig were not aware this had occurred until they conducted discovery in this trial.

F. The United States Launch of Kijiji and the Notice of Competitive Activity

On June 19, 2007, Silverman called Jim and informed him that eBay planned to launch Kijiji in the United States on June 29, 2007. Silverman worked from a script on the call. The script outlined numerous talking points Silverman wanted to get across to Jim. Included in these points was a reminder that the Shareholders’ Agreement permitted eBay to launch a competing site domestically. The United States launch of Kijiji qualified as Competitive Activity under the Shareholders’ Agreement because it provided a job list *19 ings section. Silverman’s script did not contain an express acknowledgment that eBay could lose many of its rights under the Shareholders’ Agreement by launching Kijiji in the United States. Silverman appears to have been aware of this possibility, however, because he told Jim that Le-vey would soon contact craigslist’s outside counsel to discuss modifications to the Shareholders’ Agreement in light of the United States launch of Kijiji.

Three days later, on June 22, 2007, Le-vey emailed a term sheet to craigslist’s outside counsel proposing modifications to terms in the Shareholders’ Agreement. Among other things, eBay sought to modify § 4.6 so that, although eBay would still lose its consent rights, craigslist would be required to give eBay “15 calendar days advance notice” before taking any § 4.6 actions, including an “adverse charter amendment” or “issuance of [craigslist] ... stock.” 56 In exchange, Levey said eBay would be willing to consent to a charter amendment that would eliminate cumulative voting, thereby making it impossible for eBay to elect a director to the craigslist board. Levey believed eBay had a right to a board seat and that eBay would retain that right after launching Ki-jiji in the United States. No one at craig-slist responded to Levey’s invitation to renegotiate the Shareholders’ Agreement.

On June 29, 2007, Kijiji went live in two-hundred and twenty cities in all fifty states. The same day, craigslist sent eBay a notice of Competitive Activity per § 8.3(e) of the Shareholders’ Agreement. The notice gave eBay ninety days to cure before eBay would lose (1) its consent rights, (2) its preemptive rights over the issuance of new shares, and (3) its rights of first refusal over Jim and Craig’s shares. All was not dreary for eBay if it failed or declined to cure, however, because the craigslist shares eBay owned would become freely transferable. On July 6, 2007, Silverman resigned from the craigslist board, and Levey informed craigslist that eBay employee Tom Jeon would replace Silverman. Levey asked craigslist to send copies of the board resolutions appointing Jeon as a director. On the same day, craigslist’s outside counsel asked Jeon for an introductory biography, which Jeon provided, but nobody communicated with Jeon thereafter, craigslist never seated Jeon; nor did it send confirmation to Le-vey that Jeon would be seated.

G. “Our Thoughts”

On July 12, 2007, Jim sent an email to Whitman captioned “Our Thoughts,” informing Whitman that craigslist wished to “gracefully unwind the relationship” between the two companies because craig-slist was no longer comfortable with eBay’s shareholding and board seat. 57 Jim explained that craigslist had received negative feedback from its users regarding the continuing eBay-eraigslist relationship in the wake of Kijiji’s launch. Jim further explained that craigslist did not think in terms of competition, but it was clear that eBay did, which made craigslist uncomfortable because eBay was a large stockholder privy to craigslist financials and other nonpublic information. Jim hoped craigslist could negotiate a repurchase of its shares from eBay or find a new home for the shares with some other investor.

After four days passed without a response from Whitman, craigslist’s outside counsel — Ed Wes — telephoned Levey to *20 see if Whitman had received Jim’s email. After the discussion with Levey, Wes sent an email to Jim informing him of the conversation. According to the email, when Wes asked Levey how Whitman felt about Jim’s proposal that eBay divest its shares, Levey responded with his own question: How would Jim and Craig react if Whitman told them to go “pound sand?” 58

In the meantime, Jim had started to brainstorm with craigslist’s outside counsel about what craigslist should do if eBay declined to sell its craigslist shares. The ideas batted around included issuing additional craigslist shares to a third party sufficient in number to dilute eBay’s ownership to less than twenty-five percent, implementing a poison pill, and implementing a staggered board. In exploring these measures, Jim was trying to identify — with the help of counsel — capital structure or corporate governance changes that, if implemented, would make it impossible for eBay to place a director on the board and would limit eBay’s ability to purchase additional craigslist shares. Of course, none of the proposed measures could be implemented before the ninety-day cure period had run, and eBay lost its consent rights. But presumably by then craigslist would know if eBay was going to keep its shares while operating a competing business.

Whitman finally responded to Jim’s “Our Thoughts” email on July 23, 2007 with the following:

[W]e are so happy with our relationship with craigslist, that we could [not] imagine ... parting with our shareholding in craigslist, Inc. under any foreseeable circumstances. Quite to the contrary, we would welcome the opportunity to acquire the remainder of craigslist, Inc. we do not already own whenever you and Craig feel it would be appropriate.

... Given the foregoing long held and oft communicated sentiment, we are quite surprised that you would suggest any course of action to the contrary, especially given your recent comments to the Times:

“Many companies offer classifieds, but since we don’t concern ourselves with considerations such as market share or revenue maximization, we don’t think of them as competition.”

“Our focus is providing what users want. If other companies are better positioned, then [users] should migrate over to that.”

In keeping with the emphasis [eBay] places on integrity, we have already taken even further steps to completely firewall off the operations relating to our Kijiji offering in the U.S. from the corporate management of our investment in craigslist Inc. Hence, more than ever, we feel we should, as we have unfortunately been unable to do to date, together leverage the myriad assets in the global eBay Inc. family to provide the craigslist community with the best possible user experience. 59

Jim and Craig interpreted this as Whitman’s way of telling them to go “pound sand.” They also began to suspect, based on Whitman’s reference to an internal firewall, that nonpublic craigslist data had been used to develop and expand Kijiji. From that point, Jim and Craig were determined to take measures to keep eBay out of the craigslist boardroom and to limit eBay’s ability to purchase additional craig-slist shares.

*21 H. Jim and Craig Develop the 2008 Board Actions

For the next six months, Jim and Craig consulted with o