(Revises first sentence, adds comments by judge, lawyers andeBay, other background, adds SAN FRANCISCO to dateline)
By Tom Hals and Alexandria Sage
WILMINGTON, Del./SAN FRANCISCO (Reuters) - A judgeThursday reinstated eBay Inc's 28.4 percent stakein Craigslist, but allowed the classifieds site to keep eBayoff its board.
The mixed ruling in Delaware's Chancery Court gave no clearvictory to either of the companies, whose relationship turnedfrom cozy to competitive and ended up in court in 2008.
Still to be litigated is a lawsuit Craigslist filed in SanFrancisco against eBay alleging its larger rival used its boardseat to glean confidential information about the classified adbusiness.
EBay sued its smaller rival in 2008, claiming a rights planCraigslist adopted diluted eBay's stake from 28.4 percent to24.85 percent.
"More fortunate than Goliath, eBay leaves this field withonly a gash across its forehead; less fortunate than David,Craigslist leaves this field with something less than totalvictory," wrote Chancellor William Chandler III of Delaware'sCourt of Chancery in his opinion.
EBay, which has estimated Craigslist's value at severalbillions of dollars, has always maintained that the courtswould reinstate its true stake.
Craigslist, meanwhile, has been anxious to protect itsdecision-making and trade secrets after eBay launched acompeting ad site, and Thursday's ruling will keep eBay out ofthe classified company's boardroom.
EBay claimed victory in a statement released Thursdaywhich did not mention the board seat.
"EBay brought this suit to protect its own shareholders andpreserve its valuable investment in Craigslist," it said.
Craigslist did not immediately respond to a request forcomment.
James Cox, a professor at Duke Law School, said there isprecedent for companies adopting the staggered board electionsused by Craigslist to seal its board room to eBay.
"They're just locked out," he said of eBay.
Charles Elson, a professor who specializes in corporategovernance at the University of Delaware, said that state's lawprotects the rights of minority shareholders. "Actions thatcompromise rights of minorities is problematic," he said.
"They have the right to a staggered board, but not to arights plan that dilutes minority shareholders out ofexistence."
In 2004, sensing a growth vehicle, eBay paid $32 millionfor a 28.4 percent interest in Craigslist -- paying bothfounder Craig Newmark and Chief Executive Jim Buckmaster $8million each in the bargain.
But relations between the two companies soon soured afterthe launch of eBay's U.S. classifieds business, Kijiji, in2007.
Craigslist responded by diluting that company's stake to24.85 percent in what eBay called "a coercive plan" thatstripped them of a board seat. Craigslist executives it saidwas a self-protective measure well within its legal rights.
LAWSUIT IN THE WINGS
The conflict is being closely watched, as case lawpertaining to private companies that adopt protective plans israre.
A week-long trial held in December in Delaware ChanceryCourt exposed a clash of corporate cultures, broken promisesand name-calling.
In one instance, Buckmaster said one of eBay's dealmakershad told him that then-eBay CEO Meg Whitman -- currentlyrunning for governor of California -- had an "evil" side andcould be a "monster" when angered.
The relationship began with a wooing period in which eBayexecutives, including Whitman and founder Pierre Omidyar,assured Craigslist that the two companies' values were aligned.Newmark and Buckmaster both testified that they were assuredthey could bow out of the relationship should it not work out.
But the differences between the two companies were soonrevealed, with eBay executives complaining about "amateurishboard meetings" at Craigslist, and the latter's complaints thateBay was too focused on profit and had an eye for eventuallyacquiring the company.
Whitman testified that she considered classifieds animportant area in which eBay could expand and originallyconsidered Craigslist the company's "play" in that market.
The Delaware decision comes a week after Craigslist said ithad dropped its "adult services" listings that many U.S.politicians have criticized, claiming they encourageprostitution and human trafficking.
The case is eBay Domestic Holdings Inc v Newmark, et al,Delaware Chancery Court, No. 3705-CC. (Reporting by Alexandria Sage, editing by Matthew Lewis)