Free Use of API’s to Spur Innovation and Maximize the User Experience: Should the Court’s Delve into the Sphere of Corporate Law and Regulate Companies’ Terms of Service?


Where Company A has allegedly made assurances (through implied conduct) to Company B that Company B will continue to be able to use Company A’s platform to conduct Company B’s business which intrinsically depends on the use of Company A’s platform for its existence and Company A subsequently retracts that assurance.

In order for a contract to be valid, there must be offer and acceptance, consideration, and an intention to create legal relations.

In our set of circumstances, had Company B actively solicited a clear, and concise promise from Company A, Company B would have a valid case. However, no such clear and concise promise has been made with the necessary intent.

An example of a clear promise:

  1. Company B communication to Company A: ‘We are currently considering beginning the development of a mobile application which effectively requires the use of Company A’s platform API. Can you please provide current and ongoing access to your application, after which we will proceed to commit resources dedicated to the build of the mobile application?’

Consideration provided by Company B to Company A would be in the form of the improved User experience of Company A’s platform: Users of Firegram enjoy increased traction and likes, thereby improving the core user experience of Instagram.

Implied Consent:

A form of consent which is not expressly granted by a person, but rather inferred from a person’s actions and the facts and circumstances of a particular situation (or in some cases, by a person’s silence or inaction). For example, implied consent to a contract can be inferred when one person has been performing on the contract, and the other person has accepted the first person’s performance without objecting or complaining.

Company B will argue that Company A impliedly consented to the use of their platform by Company B through the trail of email correspondence. This argument appears to have some validity.

In this regard, the doctrine of equitable stoppel is relevant:

Equitable estoppel is a defensive doctrine preventing one party from taking unfair advantage of another when, through false language or conduct, the person to be estopped has induced another person to act in a certain way, which resulted in the other person being injured in some way. This doctrine is founded on principles of fraud. Generally, the elements that need to be proved are:

  • There must be a representation or concealment of material facts.

  • These facts must be known at the time of the representation to the party being estoppel.

  • The party claiming the benefit of the estoppel must not know the truth concerning these facts at the time of the representation.

  • The representation must be made with the intention or the expectation that it will be acted upon.

  • The representation must be relied upon and acted upon.

  • The party acting upon the representation must do so to his or her detriment.

It would be a valid argument to state that Company A has made an (1) representation of material facts (use of Instagram API) on an (2) ongoing basis. (3) Company A clearly has the intention that Company B will act upon its representation that the API will be available and (4) Company B has clearly acted upon it to (5) their detriment.

Key Observations:

  1. Company B underwent significant work on their mobile application prior to requesting permission from Company A – such practise is not prudent or mindful.


The argument for Company B appears to be weak as Company A has not provided any positive assurance that the Company B will continue to use the API. On the face of it, there appears to be no intention to create legal relations – a necessary ingredient for a valid contact.

However, the intention may be construed as being present through the implied consent through conduct in the form of ongoing communication which enabled the use of the API.

In such a case, equitable estoppel is relevant. This is only used in the rarest of circumstances and is an instrument of judicial discretion.

The courts will view the circumstances as a whole and especially regard the subject matter at hand.

These circumstances are especially interesting given the relatively unique nature of mobile applications and the use of API and raises some new issues and themes.

With the emergence of mobile applications at the forefront of of technology, to what extent can applications share other API’s? To what extent should this information be made public and share-able given the need for innovation and transparency? Would the Courts effectivey be overstepping their boundaries by delving into the sphere of Corporate Law and regulating pre-established terms of use?

It appears unlikely that Party B would be able to recover – Instagram has a clear, accessible ‘Terms of Use’ which sets out:

Term (2) Users shall not, (3) Participate in any “like”, “share”, “comment”, or “follower” exchange programs.

From a strictly legal perspective, Instagram may likely escape liability, however, although somewhat outside of the scope of this discussion, there is much to be said about transparent communication and practicing a standard level of human decency. A simple email denying API access would surely have accomplished this, saving time and resources on both ends.

Decoding the Complexity that is Mr. Shawn ‘Jay Z’ Carter: Social/Political Activist, Revolutionary and Leader

In researching Mr. Carter, it’s like an endless pit of complexity. What’s a fan to write about? His street credibility and upbringing, his strong family and friend ties, his business acumen, his above average intelligence, his efforts in moving Rap and Hip Hop culture to reach the highest stage, his ability to create songs in a matter of minutes, his ability to cement himself as the GOAT and establish a leading record label? What I’m trying to say is that in searching for ‘Themes’ to expand on, they appear to be endless and this depth is very rare to find.

This particular piece will cover a foundation element of  Mr. Carter’s ‘personoe’:  an activist leader for his delegation and a revolutionary. After reading Decoded, I’ve formed my own views of the Mr. Carter as a revolutionary and social activist and the argument is laid out below. My aim is to simply present the theme as a whole and supporting information and make my own observations for what I perceive to be the truth.

Throughout Mr. Carter’s life, he has taken an active part in remembering the political movements and revolutionaries before him

“I’m representing for the seat where Rosa Parks sat/where Malcolm C was shot/where Martin Luther was popped…” – ‘Ruler’s Back’ from The Blueprint. Here Mr. Carter advanced the stage to the highest level – the black civil rights movement.

Mr. Carter is well versed of the history and interests prior to him: In ‘Decoded’, he writes:

It was king of a natural move, really. The 1970s were a time when black art in general was being used as a tool for social change, whether it was in poetry of people like the Last Poets or in the R&B of Marvin Gaye or Donny Hathaway or in movies like Shaft. And politics had a real cultural angle, too. The Black Panthers weren’t just about revolution and Marxism, they were about changing style and language. Jesse Jackson recited poems like ‘I am Somebody’ to school children of my generation. Art and politics and culture were all mixed up together. So it was almost obligatory that any popular art include some kind of political message. Some early rap was explicitly political, like Afrika Bambaataa’s Zulu Nation Movement. But other rappers played it safe and nonspecific. They’d throw in a line about peace, or supporting your brotherman, or staying in school, or whatever. It took a while before rappers as a whole really sharpened their commentary, but, again, it was hard not to – there was so much to comment about if your eyes were open to what was going on around you.”

Mr. Carter not only acknowledges the contribution of other rappers but also places these Artists on equal footing in advocating for political causes – a prime example of one of HOVA’S primary traits – to put the spotlight on others. These artists, namely Run-DMC, Melle Mel, KRS-One, Brand Nubian, Ice Cube, Poor Righteous Teachers, Queen Latifah, Salt ‘N’ Peppa, Ed O.G. & DA Bulldogs  in identifying such issues as crooked crops, drug dealers and addicts, shady churches, misogyny, safe sex, and being a good parent to your kids.

“These songs changed things in the hood. They were political commentary, but they weren’t based on theory or books. They were based on reality, on close observation of the world we grew up in.”

However, there has always been a duality, a balance if you will, between Mr. Carter’s own experiences growing up in Marcy projects and spending countless hours hustling on the streets on the one side, and the suffering of His people on the other. It now becomes a play of the full identity of a hustler with political and revolutionary glimpses, rather than solely the latter.

In ‘Public Service Announcement’, JAY-HOVA clearly sets out his identity and comes across as a man with intimate knowledge of self. He is not individually responsible for the revolution or advocating for rights, but rather, he is a complexity and man of many layers and depths. In PSA, Mr. Carter emphasizes that the game is about money and living one’s own current realization of truth. In this stage of Jay Z’s career, his realization was to earn wealth and speak his truth. His realization was to progress Hip Hop and earn a healthy living while doing so. An adaptation of Malcolm X’s slogan, ‘By any means necessary’ clearly sets out his prerogative.

“I’m like Che Guevera with bling on, I’m complex/I never claimed to have wings on my n***a I get my/ by any means on whenever there’s a drought/get your umbrellas out because/that’s when I brainstorm/ you can blame Shawn, but I ain’t invent the game/I just rolled the dice, trying to get some change/And I do it twice, ain’t no sense in me/lying as if I am a different man/And I could blame my environment/but there ain’t no reason/” – ‘Public Service Announcement’ from The Black Album.

In response to Elizabeth Mendez Berry’s essay stating that Jay Z is more a hustler than a revolutionary, Shawn Carter replied: ‘No doubt, it’s a simple truth, but complex, too. Identity isn’t a prison you can never escape, but the way to redeem your past is not to run from it, but to try to understand it, and use it as a foundation to grow.’

And it’s this very foundation which I am attempting to understand and learn from. The layers of Mr. Carter’s identity, growth and ultimate evolution of Mr. Carter and how he has handled the competing pressures of the external world around him.

However, despite the said complexity, the where the social issues are pressing, Mr. Carter has no hesitation in spitting raw truth.

‘Decoded:’ “Artists of all kinds have platforms and, if they’re any good, have a clearer vision of what’s going on in the world around them. In my career I’ve never set out to make songs that function as public service announcements (not even the song ‘Public Service Announcement’ with a few exceptions, one of which is the song ‘Meet the Parents’. But in honoring the lesson of my father – to pay attention – and the lesson of hip hop – which is to tell the truth – I’ve been able create my own kind of social commentary. Artists can have greater access to reality; they can see patterns and details and connections that other people, distracted by the blur of life, might miss. Just sharing the truth can be a powerful thing.”

One such pressing issue is the social commentary behind parents being there for their children. ‘Meet the Parents’ from the Blueprint 2 is a hauntingly written story providing intimate details of a young boy growing up fatherless and eventually, while on the street hustling, encountering the same father who had abandoned him on the streets. The boy’s mother had dipped into drug addiction. Upon encountering his father on the street, the boy freezes and that moment of hesitation costs the boy his life: “The old man didn’t think he just followed his instinct/six shots into his kin, out the gun/ n****s be a father, you’re killing your son”. A public service announcement from the depths of the Poet meant to shake the roots of parents with clear instructions to care of their children.

From my research, I feel Poverty and the realization of wealth relative to others is truly a block within the said foundation. In ‘Decoded’, Mr. Carter speaks about the very minute he realized that his family didn’t have as much. and the feeling that came along with “One of the reasons inequality gets so deep in this country is that everyone wants to be rich. That’s the American ideal. Poor people don’t like talking about poverty…it’s embarrassing…the burden of poverty…feeling of being embarrassed…you’d do anything to life that burden…the sad shit is that you never really shake it all the way off, no matter how much money you get.”

Perhaps a good place to continue is to state what Jay Z is not and one thing that he is not, is afraid. Shawn Carter has openly criticized politicians and governments and brings the raw truth to the forefront.

Excerpt from ‘Decoded’:  “Back in the eighties and early nineties in this country were literally battlegrounds. Kids were as well armed as paramilitary outfit in a small country…the deeper causes of the crack explosion were in policies concocted by a government that was hostile to us, almost genocidally hostile when you think about how they aided or tolerated the unleashing of guns on poor communities, while at the same time cutting back on schools, housing and assistance programs. And to top it all off, they threw in the so called war on drugs, which was really a war on us. There were racist new laws put on the books, like the drug laws that penalized the possession of crack cocaine with more severe sentences than the possession of powder. Three strike laws could put young guys in jail for 25 years for nonviolent crimes. The disease of addiction was treated as a crime. The rate of incarceration went through the roof. Police abuses and corruption were rampant. Across the Country, cops were involved in the drug trade, playing both sides. Young black men in New York in the eighties and nineties were gunned down by the cops for the lightest suspected offences, or died in custody under suspicious circumstances.”

I mean, let’s understand these words. Mr. Carter compares the crack explosion policy of the Government to near genocide of its own people.  The reality of the situation is stated with clear, cutting truth: “And Government, fuck Government, n****s politic themselves” –  ‘Where I’m from’  in the Album ‘In My Life Volume 2’. Mr. Carter felt that the government was irrelevant because the neighborhoods organized, resolved conflict and took care of ourselves.

Another social injustice Mr. Carter has often spoken about is police targeting and brutalizing blacks. In ‘Decoded’, he recalls his own experience after a show where the Police stopped his car with unjust intent.

“When I lifted the partition I saw half a dozen squad cars surrounding us. My bodyguard was already out of the car and a detective was showcasing his gun up in the air like he had found something. But  my bodyguard claimed the gun and showed them his license. I was in the backseat laughing because they were so overdoing it, but the next thing I knew someone was opening my door and putting their hands on me, trying to drag me out of the car and make turn around. I tried to talk to them, ‘You know this is not necessary; he has a license, he claimed the weapon. What’s the problem? The cop looked back at me with that shut up, n***a screwface, but I could tell he was confused. ‘I got Jay Z’, he said into the phone, with a sense of accomplishment.”

Crooked Officer, Why You Wanna See Me in a Coffin, Sir?

However, in the spirit of Truth, there is not misguided cynicism or bitterness towards the Government. In fact, there is this unwavering recognition of the Truth, be it good or bad and the fortitude to express the Truth, even the accusation of genocide, against the Government.

In MCHG ‘Nickles and Dimes’, Shawn Carter noted eloquently: “I walk the line between beauty and beast”. When living in the realm of  Truth, there are always two sides to the coin – the contrary argument – and I feel Mr. Carter’s connection with the Truth is deeply rooted in understanding that although inner city kids come from a severe disadvantage,  in todays’ times, the opportunities are still present and nonetheless there. It’s on us to rise up, work hard, attend schools and secure employment to increase the quality of life and build and wealth , status and opportunities for future generations.

In 2008, Mr. Carter strongly supported President Barack Obama’s campaign despite clearly being “sick with what happened with the Country since 9/11′ (listen to ‘Blue Magic’ from Kingdom Come album), the wars and torturethe response to Hurricane Katrina (listen to ‘Minority Report’ from Kingdom Come album), the arrogance and dishonesty of the Bush administration. The position was formed from intelligence having thorough discussions about policy and a fundamental belief in President Obama’s ability to solve problems. and influence a generation of youngsters. HOVA also recognized that seeing a black president would change the lives of millions of black kids who now saw something different to aspire to”.

Mr. Carter performed free shows throughout the country to encourage young people to register and vote. He further took a back seat and admitted that his interests were merely in seeing President Obama win the election and was content in directing the attention of the campaign to the President.

From ‘My President is Black (Remix)’: ‘My President is Black/My Mayback too/..Rosa Parks sat so Martin Luther could walk/Martin Luther walked so Barack Obama could run/Barack Obama ran so all the children could fly/…Hello Ms. America/Hey Pretty Lady/that red and blue flag/wave for me baby/never thought I’d say this shit baby I’m good/you can keep your puss I don’t want no more bush/no more war/no more Iraq/no more white lies/the President is Black’.

Again we see the same duality we saw in PSA and HOV’s response to Elizabeth Mendez Berry’ with the likening of a black Maybach indicating wealth with the new black President indicating major socio-political advancement for minority groups.

Political activism can come in even subtler forms and an example of this is Mr. Carter laying out a verse in Panjabi MC’s ‘Mundian To Bach Ke (Beware of the Boys)’. This came out in 2003, early in the Iraq invasion and the track itself had a distinctly Arabic sound to it which potentially could have. Mr. Carter laid out a marked criticism against the War and also laid siege on other political fronts: “We rebellious we back home/screaming leave Iraq alone…/Before bin Laden got Manhattan to blow/Before Ronald Reagan got Manhattan to blow”.

In my opinion, this is truly pure love for One’s Country – a love that transcends interests and political motives. A love that peers beyond the veil of one’s own interests. Mr. Carter was clear to criticize with stark truth in clear language when he felt the Government was wrong, and adversely, was willing to put a lot of time and energy into a cause that he felt would help his Country.

Continuing with the theme of Truth, we see a similar depth in ‘Open Letter’ where the backdrop of the track is set to US Senator’s criticism of Mr. and Mrs. Carter from entering Cuba: ‘Politicians never did shit for me/except lie to me and distort history/fine, let me commit a real crime/I might buy a kilo for Chief  Keef/Out of spite, I just might flood these streets/Hear the freedom in my speech”. HOV will visit a country and people that he loves – Mr. Carter has recently visited Cuba again for philanthropic and charitable purposes.

The same deep resonating truth reasoned during the Hurricane Katrina crisis:  in ‘Minority Report’ from the album ‘Kingdom Come’: ‘The same idiots that can’t get water into a major American city in less than three days are trying to win a war..’

HOVA puts some real perspective on the situation in ‘Decoded’: ‘I’m sure there were a few idiots stealing plasma TVs, but even that has context – anger, trauma. It wasn’t like they were stealing TVs so the could go home and watch the game. I mean, were they going to plug them shits on?’

Perhaps the realest form of empathy is numbness in feeling the pain of those suffering so deep that there’s nothing truly you can do other than pray and donate: “..described as ‘refugees’ in their own country, waiting in vain for the government to step in and rescue those people who were dying right in front of our eyes, and we took it personally. I got angry. But more than that, I just felt hurt. In moments like that, it all starts coming back to you: slavery, images of black people in suits and dresses getting beaten on the bridge to Selma, the whole ugly story you sometimes want to think is over. And then it’s back, like it never left.”

An even deeper numbness set in after Mr. Carter’s visit to Africa. After seeing life in the Angolan slums, Mr. Carter put his own upbringing in context: “We’re not in the hood. By any means. Not even close.” Whole families would live in a small room and children would be forced to ferry buckets of water for miles on end and play ball next  to an open sewage system. In ‘Decoded’, Mr. Carter notes the experience and especially the fact that the money which was donated was actually used for the correct purpose: to bring water to the village residents. Mr. Carter has acknowledged frustration over charitable money that does not reach its true end; in ‘Nickles and Dime’s in MCHG, the visual was clearly laid out: “Sometimes I feel survivor’s guilt/I gave some money to this guy, he got high as hell/Now I’m part of the problem as far as I could tell/Did I do it for or do it for myself?”

My Flow is a Gift, Philanthropist

Embedded image permalink                                                                                                -Mr. Carter on his arrival to Africa

In Mr. Carter’s latest work ‘Magna Carta Holy Grail‘, I feel that  Mr. Carter’s voice is resonating with a power I’ve never heard before. It’s difficult to describe but Mr. Carter’s voice sounds…deeper, vibrating at a higher level….

“New Black with New Stacks” – ‘Somewhere in America’ from MCHG.

Slave ship imagery in ‘Oceans’ from MCHG

“Only Christopher we acknowledge is Wallace/ I don’t even like Washingtons in my pocket” – ‘Oceans’ from MCHG

“Knowledge, wisdom, freedom, understanding we just one eyed equality/Food, clothing, shelter, help a n***a find some peace” – ‘Heaven’ from MCHG

“America tried to emasculate the greats/Murder Malcolm, gave Cassius the shakes, Wait, tell them rumble young man rumble/Try to dim your lights, tell you be humble” – ‘FUTW’ from MCHG

There’s probably a reason I started at the theme of ‘political activist and revolutionary’ rather than  many other titles that can be attributed to Mr. Carter. It’s an internal feeling that’s been rising for quite some time. To truly understand the layers of greatness, one must achieve a certain level of success and greatness himself and perhaps this why I admittedly struggle with understanding the said complexities at a deeper level.

What I see is a legend living the American dream all while deeply voicing his truth on social issues. What I also see is a man who’s accumulated power and influence through hard work and such influence is not abused arbitrarily but, on the contrary, spoken from a space of silence, thoughtfulness and truth with no fear.

What I admire is Mr. Carter’s pragmatic approach. Growing up in Marcy projects, a core lesson was that it’s all about money. The level of one’s impact, power and ability to enact change is directly linked to wealth and stature. In Truth, I’d use the word ‘real’. HOVA is a collection of his experiences and upbringing with competing priorities and a sense to do what’s real, true and ultimately right for himself, the people he loves and the people he represents.

I feel it’s the legend and stories of the greats that inspire young inner city kids to become lawyers, doctors, architects and so on. Such accomplishments will no longer be a one off success story but a societal norm thanks to examples and leadership provided by the greats. Future social injustices against Mr. Carter’s people will be open criticized with a deep reasoning voice of truth. I look forward to seeing the continued journey of a highly evolved man that is Shawn Carter and soul and especially learning from his footsteps.

So I Got Rich and Gave Back, To Me That’s The Win-Win

Mobile Payments Revisited – Thoughts and Analysis

Correct me if I’m wrong…

Mobile Money requires both: 1. Point of Sale (POS) Capabilities (Visa, MasterCard – have existing software/hardware infrastructure in retail spots); 2. App on SmartPhone (Wallet, iPhone Finger, PayPal).

G-Wallet with Mastercard provides both. Users must download G-Wallet which means that effectively penetrating requirement 2 is the challenge as Apple users may not on board.

i-Phone fingerprint fulfills requirement 2 but same challenge as Google in penetrating Android based phones (see below); Apple currently sitting on the fence regarding requirement 1.

Board at eBay has great relationships with retailers: Home Depot, Abercrombie & Fitch, Advance Auto Parts, Aeropostale, American Eagle Outfitters, Barnes & Noble, Foot Locker, Guitar Center, Jamba Juice, JC Penney, Jos. A. Bank Clothiers, Nine West, Office Depot, Rooms to Go, Tiger Direct and Toys “R” Us.

This (partly) fulfills requirement 1 and ensures PayPal growth for years as payment volume high with recovery; ensures a solid chunk of Mobile Payment revenues; Challenge: Requires user to download PayPal mobile app to fulfill requirement 2.

On a deeper note, execs at said Retailers incentivized to put PayPal in stores: do not see same incentives from MasterCard/Visa who already have systems in place;

FaceBook could have moved with PayPal: FB mobile users automatically download PayPal add on software update (see ‘water down’ argument below); however PayPal worth probably $50B right now and FB unwilling to pay such large amount for a mature business. Also not the perfect fit to address requirement 1 (PayPal only in select retailers) and 2 (PayPal Mobile App appears to have limited user base). A ‘forced’ fit if the deal took place.

Instead FB chooses to buy WhatsApp for 19B (only 4B cash); will they layer in a Payment App?  Apple v Android is irrelevant because WhatsApp penetrates all platforms and users. FB itself has 300M+ mobile users…perhaps MZ does not want to ‘water down’ the core FB brand by giving users Mobile Payment app without their explicit consent/knowledge?

Visa waits for strongest suitor that fulfills requirement 2: Facebook with WhatsApp + Mobile Money Component?

Apple appears to be on the outside looking in as how do they penetrate Android market with App that fulfills requirement 2? Fingerprint technology is cool but limited to their Apple devices.

Google potentially same challenge; Google Wallet can be programmed into Android phones as a default app. How to penetrate Apple user base?

The Perfect Set-Up: A Response to Marc Andreessen’s Recent Letter #NotWorldClass #SpinPayPalNow

It appears that Marc Andreesen has ‘covered the bases’ and limited his own liability in the Skype fiasco with his contention that the Board was fully informed of his interests in the Company and that he did not take part in the vote to sell Skype.

As a result of good corporate legal advising, Mr. Andreesen has masterfully escaped liability at the stake of putting his fellow Directors in the line of sight.

Comparable example: The ‘crime scene’ has been thoroughly blanketed for fingerprints and Mr. Andreesen’s own fingerprints have been replaced by those of his fellow Directors – a classic case of framing.

Mr. Andreesen has effectively limited  any scope of liability (and incidentally reaping the largest profits on the sale of Skype) by setting the responsibility of a bad (if not negligent) business decision solely on the shoulders of the other Directors. If there is truth in this reasoning, the Directors on the Board who voted for the sale of Skype may be liable of a breach of their fiduciary duty to promote the success of the company and also to exercise reasonable care, skill, and diligence.

Directors are under a statutory duty to promote the success of the company and act, good faith, and single minded loyalty to the Company. The question is whether the Directors who voted to sell Skype honestly believed that such a sale would be in the best interests of the company. In Barlows Clowes International v Eurotrust International [2005] the Privy Council stated that all that was required was evidence that the Director was conscious that even a part of the transaction was outside the realms of reasonable and ordinary standards of honest behavior.

Directors are under a fiduciary to exercise reasonable care, skill, and diligence. The Director must possess skill that ‘may reasonably be expected from a person undertaking those duties’ per Hoffman LJ in Norman v Theodore Goddard. As such, a Director who professes to be an expert in the Company’s technical property is expected to possess reasonable skill in the said technical field and is also expected to put that skill to proper use. The Directors at eBay are therefore under a fiduciary duty to possess and apply the relevant skills to business transactions. In the case of the Skype sell off, it can be strongly argued that the Directors fell short of the requisite skill and dilligence required in the role.

Of course, in the course of business, mistakes are only a part of the game. After all, no Director is a robot programmed to run perfect strategy. If the extremely low valuation and sell off is a mistake, the mistake borders recklessness as it cost eBay shareholders over $6B in value. Clearly the Board of Directors is lacking in its ability to make sound business decisions and refusing to spinoff PayPal appears to be a decision right in line with the Skype fiasco.

It is unfortunate that eBay is not forthcoming with the documents required to ascertain the reasoning behind such a poor business decision. Only with these documents can the reasoning be truly penetrated and the pertinent questions asked: What perceived value was eBay unable to provide the Skype platform? What value was added after the sale of Skype which led to a valuation nearly triple what it was originally sold at? Could this value been added by eBay themselves? Can it be said that the Directors acted honestly and skillfully? Why should Shareholders of eBay believe that a spin-off of PayPal is not the best course of action when it is a widely held objective belief in the business community?


University of London International Programmes Undergraduate Laws Study Guide on Company Law

Dignam and Lowey, Company Law, 6th Edition

#NotWorldClass #SpinPayPalNow

eBay – A Corporation Devoid of Corporate Governance Principles: A Discussion of Section 175, Duty Not to Personally Profit and to Avoid Conflict of Interest

Section 175 of the Companies Act 2006 sets out a duty not to personally profit and also to avoid conflicts of interest.  The liability appears to be broad in its discretion, as seen by the wording of Section 175(1): “A director of a company must avoid a situation in which he has or can have a direct/indirect interest that conflicts or possibly may conflict with the interests of the company. The wording of the section therefore implies that a Director placing himself in the possibility of conflict, which is short of actual conflict, may still be required ‘to account’. Directors, therefore, are held at a very high standard and level of fiduciary care when promoting the interests of the Company.

The duty is fundamentally one of ‘single minded loyalty’ to the Company that the Director is serving as set out in Bristol and West Building Society v Mothew [1988] adapted from the classic definition in Bristol v Ford [1896] where Law Lord Millet emphasized acting in good faith and avoid placing himself in situations where the interest of the company would conflict with his own interests.

The distinction, it appears, is one of unjust enrichment in constructive trusts: the goal is to prevent unjust enrichment of Directors through fraudulent and dishonest behaviour. However, even where there is no fraud, the Directors are still liable to account, or inform, the Board and Shareholders of the possibility and circumstances of the potential conflict or stream of outside enrichment. To illustrate the point in case law, in Cooks v Deeks [1916] the Directors diverted contracts which were offered to the Company to their own commercial interests which was a blatant disregard of their fiduciary position. However, in Regal (Hastings) Ltd v Gulliver [1942] the Directors sold their shares in a subsidiary through special knowledge they had obtained in their position as Directors. In this case, there was no dishonesty or fraud but this did not negate the duty of Directors to disclose such profits to the Board and Shareholders to be ratified and any such profit which was not disclosed was held on constructive trust for the Shareholders.

By stating the fundamental legal argument and legal logic set forth above, the goal is to simply define the sensitivity of the Director’s mindset in determining liability. We are also attempting to describe and reinforce the Court’s strict approach regarding even a minute amount of fraudulent or dishonest behaviour.

Competing Directorships are a possible conflict of interest under Section 175 – Mr. Cook, a Director on the eBay board, also holds a Directorship on Intuit (a company in which Mr. Cook owns nearly $1 billion in stock) and is a direct competitor of PayPal.  The discussion continues with London and Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] which established that it was not a breach of fiduciary duty for a Director to hold a Directorship position on the Board of two competing companies. The approach was later approved in Bell v Lever Brothers [2002].  With time, the Court’s appeared to move away from the position.  In SCWS v Meyer [1959] Lord Denning noted that Directors who hold competing Directorships, ‘walk a very fine line..’. Harman LJ in Gwembe Valley Development Co Ltd v Koshy [1998] was open to a Director holding two competing positions and said that the Director ‘wears both hats  and owes a [fiduciary] duty in both capacities’.  Millet LJ in Bristol and West Building Society v Mothews [1998] in contrast to Harman LJ above, placed competing directorships soundly in the space of conflicting interests. Recently, in In Plus Group Ltd v Pyke [2002] Sedley LJ questioned the Mashonaland decision and, like Harman LJ above, placed firm doubt on the ability of a Director to objectively practice a fiduciary loyalty to two competing companies. After all, how can a Director represent two companies where the aim of each is to take market share from the other? The position is perhaps best described by the great English judge, Lord Justice Denning speech in Scottish Co-Operative Wholesale Society v Meyer [1959], ‘ long as the interests of all concerned were in harmony, there was no difficulty…but as soon as the interests of the two companies were in conflict, the Director is placed in an impossible position’. The established legal position is codified in Section 175(7) where competing directorships are generally prohibited unless approved by the Board and shareholders according to the procedure Section 175(5).

To sum, a competing directorship on its own does not constitute a breach of fiduciary duty. To the contrary, there may be enlightened value that a Director is able to provide each company by leveraging established relationships in the industry. However, the opposite may be true, especially in a technology based industry where proprietary knowledge and trade secrets are common and success of a company hinges on its ability to innovate.

To this end, a thorough analysis of the said Director’s action may bring such malfeasances to light. For example, if by looking at the Board’s minute notes it is observed that the Director recommended an innovative technology that is a trade secret held by the competing Company of which he holds also holds Directorship, this may very well indicate a breach of the Director’s fiduciary duty under Section 175 to avoid conflict of interests.

Usurping corporate opportunity: “eBay sold a controlling stake in Skype to a sitting board member (Mr. Andreessen) and Silver Lake, for about $1.9 billion.  A mere 18 months later, that board member sold Skype to Microsoft for $8.5 billion.” The scenario can be attacked on three fronts – 1. Section 175, duty not to profit personally; 2. Section 173, duty to exercise reasonable care and diligence; 3. Section 172, duty to promote the success of the company. Much of the case is overlapping and the issue will be penetrated under the scope and case law of Section 175 with a brief discussion of Section 172 and 173.

Professor Prentice in ‘Corporate Opportunity Doctrine’ (1974) set out the legal theory: ‘It is a breach of fiduciary duty by a director to appropriate for his own benefit an economic opportunity which is considered to belong rightly to the company which he serves’. Lord Greene in the 1942 case Re Smith & Fawcett Ltd chose to use the terminology ‘proper purposes doctrine’ and set out two limbs to the test: 1. Acting in good faith (set out in the current Companies Act – Section 172, ‘Duty to promote the success of the company’; 2. Duty not to act for a collateral purpose (set out in the current Companies Act – Section 171).

Under Sections 172 and 173, Directors are under a fiduciary duty to act honestly, with reasonable discretion and diligence, and proper skill and care. The question turns to, whether on the facts, the Directors of eBay held an honest and reasonable belief that Skype would be better served by selling it off to another company at the apparently bargain price it was sold at.  The test for skill and diligence is an objective requirement that a director must possess the skill ‘that may reasonably be expected of a person carrying out the same functions as carried out by the director’ per Hoffman LJ in Norman v Theodore Goddard.  Why was Skype sold?  Did eBay require a capital influx? Did eBay hold an honest and reasonable belief that Skype had reached a ‘ceiling’ regarding its valuation? Did eBay encounter a creative or technical ceiling which it felt it could circumvent? If yes, clearly the Board was grossly negligent in assessing Skype’s potential as the mistake cost eBay shareholders over $6.5B. The fact that an insider was involved makes the conduct even more suspicious and adds a stench of sour deception.

As mentioned, the Board’s skill, diligence and care can clearly be questioned in the circumstances. However, the current discussion is one of personally self-dealing and a duty not to personally profit. In our scenario, a Director established a company purchased Skype and later resold for a massive profit. The case law on the subject varies widely depending on the jurisdiction in question.

The question regarding Section 175 is whether Mr. Andreesen effectively usurped a corporate opportunity by means of his Directorship at eBay. In Canadian Aero Service Ltd v O’Malley [1973] a Company had little chances of winning a contract it was actively seeking so the Directors resigned and formed their own company with the intention of winning the contract. The Courts held this behaviour to be a breach of the director’s fiduciary duty to the original company because the Directors should have seen the bid on the contract to the end. In a Canadian case, Peso Silver Mines v Croppers [1966] Peso Silver Mines was not able to pursue an opportunity due to the high risk of the project and its own inability to take on such risk. The opportunity was rejected and subsequently, the Directors formed their own company to take advantage of the opportunity. The claim against the directors was unsuccessful because the business decision not to take advantage of the opportunity was a sound commercial decision given the high risk of the investment. Generally speaking, Directors are given some discretion in using their knowledge for financial gain as per Hutchison LJ in Island Export Finance Ltd. V Umunna [1986] and this may include making a decision while still a Director to set up a competing company to step into after the end of the tenure of the Directorship at the current Company. After Balston Ltd v Headline Filters Ltd [1990] it is even possible for a Director to make preliminary enquiries of establishing a competing company while a Director at the current Company, provided those enquiries do not cross the boundary of anti-competitive behaviour. In Coleman Taymar Ltd v Oakes [2001] the Court held that the Director’s actions in purchasing equipment for the new Company while a Director at the current company crossed the preliminary steps threshold and there was therefore a breach of fiduciary duty. Although the facts differ, the logic of the Courts should be noted. The Director is free to engage in commercial activity but the line is steadfastly drawn at a point where the Director’s action runs contrary to the interests of the Company.

Is Mr. Andreesen guilty of self-dealing? What value was contributed to the Skype platform by Silverlake which effectively added nearly $6.5B in value? Why could this value not have been provided by eBay itself? The conflict within self-dealing is perhaps best set out by the age old case Aberdeen Railway Company v Blaikie Brothers [1854] where Cranworth LC noted ‘..his [Director] duty to the company was obtaining iron chairs at the lowest possible price..his personal interests would lead him in an entirely different direction inducing him to fix the price as high as possible..this is what the rule is against’.


The biggest challenge in Corporate Governance cases is the Court’s unwillingness to assess a Director’s business decision due to its lack of knowledge of the business sphere. I believe academia and established business consultants should have a greater voice in presenting their objective opinion regarding Directors’ course of action. Similar to medical experts in Criminal Law cases, the expert opinion of academics and experienced business consultants should be considered by the Courts in establishing wrongdoing and breach of Fiduciary duty.

In regards to our circumstances, it is by no means a breach of fiduciary duty to hold competing directorships. The evidence must point to an instance where the fiduciary duty was breached, for example, by divulging a trade secret. However, the Skype purchase and flips reeks of a sour stench of deception and personal gain.

University of London International Programmes Undergraduate Laws Study Guide on Company Law

Dignam and Lowey, Company Law, 6th Edition

The Poison Pill: Quietly Poisoning Shareholder Interests

A prime example of the poison pill mechanism can be seen in Criterion Properties plc v Stratford UK Properties LLC [2004]. In this case the Directors of the company diluted the company shareholding by issuing shares to allow the existing shareholders to purchase them at discounted prices. The combination of low prices and a diluted shareholding made it increasingly difficult for a third party to execute a ‘hostile’ takeover. In this case, the Court of Appeal found that selling shares at discount prices was a ‘gratuitous disposition of the company’s assets’. On review by the United Kingdom Supreme Court, the Lords instead chose to address the issue from the perspective of whether Director’s had the authority to approve the agreement with the shareholders.

A poison pill is a set of internal procedures that ‘kick in’ as soon as a hostile takeover is put into action. The issue in some jurisdictions, as we shall see, is that in many cases shareholders are not consulted of the takeover bid. In lieu of recent developments in Corporate Governance, a successful takeover may bring increased shareholder value by eliminating bad management or increasing efficiency in operations and the lack of consultation therefore may be eroding shareholder value in favour of  the Directors’ self interests.

As evident from the Criterion Properties case above, poison pills are banned in the United Kingdom jurisdiction. The City Code on Takeovers and Mergers prohibits action by a Director which may have the effect of deterring a bona fide offer for a company. Rule 21 of the Code effectively implements a non-frustration principle and sets out to negate the Board’s influence in rejecting a bona fide takeover bid, lobbying competition authorities to intervene, or finding a better matched ‘white knight’.

The rule is based on the premise of shareholder sovereignty. In other words, only shareholders have the right to decide whether to sell their shares. Secondly, it places a limit on the likelihood of a Director operating in his best interests without adequate consideration of the interests of other stakeholders involved.

In Canada, the legal position appears to be stricter than that of the United Kingdom in favour of the poison pill mechanism. Generally speaking, poison pills are an accepted clause in the Articles of the Company if approved by Shareholders. However, the Articles may also include a set of pre-requisites of a takeover bid, which if met by the third party suitor, would render the poison pill ineffective against the takeover action. In addition, the third party suitor also has the power to appeal to Provincial Securities Regulators.  The general approach taken by the Regulators is in favour of Shareholder sovereignty as described above and any such poison pill mechanism has generally been overturned and the decision left in the hands of the Shareholders. Further, the company is given opportunity to find a ‘white knight’ or a better deal from another suitor in the open market. However, note that the attitude on poison pills appears to be shifting to the opposite end of the United Kingdom fulcrum as recent policy changes suggest that takeover bids will be more difficult to achieve. The policy changes are twofold: (1) To make it more difficult to acquire an interest in an company through the hostile takeover mechanism by making available a wider array of defense mechanisms designed combat a takeover attempt and (2) to bring unity in the provincial regulators space by introducing a single national authority charged with hearing cases regarding takeover and poison pills.

In United States jurisdiction of Delaware, the poison pill mechanism is unilaterally accepted by the Courts and there is little leeway given for the potential suitor to appeal to a regulatory body as the case in Canada.

The term ‘hostile takeover’ itself has a negative connotation and implies that the third party suitor is aggressively entering the environment with the goal of a ‘shake down’. This is far from the truth and, as we know, a takeover can bring true efficiency and value to an organization thus driving up actual shareholder value. In this regard, it is perhaps key to educate Shareholders of the many examples of successful ‘takeovers’ with the effect of increasing shareholder value.

The best system is perhaps a middle ground whereby Shareholders of a company are allotted the right by consensus vote to incorporate a poison pill mechanism in the Articles. The trigger of such a mechanism would allow the third party suitor to appeal to a regulatory mediating body. The mediating body would be charged with organizing a public hearing where both Directors and the third party suitor would set out their proposals outlining their respective reasons for proposing action. The hearing would be public and open to all groups – institutional investors, hedge funds, general public and regulatory authorities.

The end goal is to release the shareholder value trap set by the Directors of the company. If the investment community in fact believes there to be locked value within the organization, the logic is that these entities will purchase shares at a perceived ‘discount level’. The effect of such a share purchase may lead to a reorganization of Directors as the new investors gain voting rights. In reality, the existing Directors of the company would either have to unlock the value trap or face a reorganization of the members of the Board.


University of London International Programmes Undergraduate Laws Study Guide on Company Law

Dignam and Lowey, Company Law, 6th Edition

A Bird’s Eye of Mobile Payments: Why Apple, Visa, and PayPal to Mobilize ASAP and Consider A United Approach

Two key components to Mobile Money environment, both required to become a player and take advantage of upsides, revenues associated w/ mobile payments.

1. Point of sale (POS) established w/ retailers: Visa, MasterCard, and PayPal (more so as of late) are key players as have established a presence at POS retail fronts.

2. Mobile Capabilities: Referring to SmartPhone mobile phones, users of Apple and Google platform phones are able to make a point of sale or online payments.

A true player in mobile money must possess a significant presence in both (1) and (2) above.  General idea is that a user will be able to make a mobile payment w/ a Google or Apple Smartphone and the appropriate software at the point of sale provided via MasterCard, Visa, or PayPal.

Google has partnered with MasterCard therefore has established itself at the leading edge of the expansion. It appears to also hold a ‘head start’ time advantage over competitors as good sense indicates that the two mega-corps are in the process of interweaving systems to deliver optimal experience, ahead of competitors to provide mobile money service on a mass scale.

PayPal strategy by level of priority:

1. Concerted focus on continuing to expand PayPal infrastructure into retailer POS. An area of high priority with executive connections, resources dedicated to establishing partnerships with retailers even if services must be discounted.

2.  Focus on developing a seamless technology interface as the entire ecosystem and ability to expand in the environment directly correlated w/ technology experience provided to the user. Therefore, a priority focus on attracting and nurturing the best tech talent.

3. A sale/partnership to Visa and Apple (see below for details)

4. Maximising Ebay Marketplace and Auctions Experience: writer has mentioned on several occasions a bearish sentiment on Ebay as an online retailer and auctioneer. A focus on revamping systems with a creative approach. As previously mentioned, Ebay Marketplace and Auctions report positive financial numbers and a growth pattern in which case this suggestion should be qualified. It is undeniable that Ebay and PayPal are intrinsically linked and therefore PayPal ongoing success will only be magnified with Ebay’s own expansion in the online retail space.

Moving forward:

The assumption is that Apple’s fingerprint technology only has online capabilities and is unable to fulfill point of sale purchases at physical retail locations.

If this assumption is true, then Apple, Visa and PayPal to consider a three pronged partnership whereby value of the partnership is based on value provided to endeavor, 40-40-20.

Alternatively, Apple and Visa acquire Square. Such an entity would place Apple/Visa/Square on equal footing with Google/MasterCard.

PayPal offers a more advanced, stable environment with clear brand recognition, and most importantly, an expert management team. A three pronged Apple/Visa/PayPal stand to be industry leader.