The Zombies exploited a flaw in the CONCORD programming, that any pilot repairing another was not seen as a hostile threat. Zombies built their strategy around this by outfitting their Apocalypse battleship with smart bombs (a weapon with area of effect damage) and supporting it with a fleet of logistic repair ships. CONCORD responded but were unable to take out the Apocalypse.
The incident became notorious when the Apocalypse began targeting CONCORD. CCP instructed the Zombies to cease fire and immediately halt all attacks but the corporation continued on regardless.
CCP commented on the incident in forums, stating
"Regarding the mass killings in Yulai last night (3rd of March 2004)
As a lot of you are aware, a certain corp willingly exploited a fault in the game mechanics and managed to kill over a 100 people in the supposedly secure Yulai system last night. We have decreed that those who were the recipients of this heinous crime will be fully reimbursed for their loss. If you are one of those who lost your belongings and still haven´t petitioned us, please do so and we will see to it that your possessions are returned to you. The exploiters have received a ban for their efforts and anyone thinking of following their example should be aware that the same fate awaits them. - The GM Team"''
CCP made good on their promise, giving out a ban to every player involved in the attack as well as replacing every ship that was lost during the altercation. The Incident provoked much discussion on the forums with players split between those who supported CCPs actions as well as those who opposed it and viewed it as heavy handed.
The long term effects of the Incident were in how CONCORD operated. Pilots repairing hostile pilots would be targeted and CONCORD ships were made invincible. CCP learnt from the incident and adapted the game around the players actions.
Videos
Yulai Incident
Zombies smartbombing Yulai