The Facebook Lawsuits

The United States Ninth Circuit Court of Appeal released its decision on Monday in FACEBOOK v. CONNECTU, INC., dismissing the claims of the Winklevoss twins, who wanted to renege on a cash and stock settlement deal with Facebook founder, Mark Zuckerberg.

The twins claim that Facebook hid information from them during settlement negotiations, estimated at $65 million. They are depicted in the 2010 Hollywood movie, The Social Network.

Kozinski C.J. wrote,

The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what theywere unable to achieve in the marketplace. And the courtsmight have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook.With the help of a team of lawyers and a financial advisor,they made a deal that appears quite favorable in light of recent market activity…

For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached.

But Zuckerberg still faces another claim, this one by Paul Ceglia, who claims to have hired Zuckerberg in 2003 to develop a platform called “thefacebook.” The WSJ Law Blog provides the amended complaint filed Monday, claiming an 84% stake in the company,

1. On April 28, 2003, Mark Elliott Zuckerberg (“Zuckerberg”) entered a written contract (the “Agreement”) with Ceglia “for the continued development of the software, program and for the purchase and design of a suitable website for the project Seller [Zuckerberg] has already initiated that is designed to offer the students of Harvard university (sic) access to a wesite (sic) similar to a live functioning yearbook with the working title of ‘The Face Book.’” The Agreement further provides that: “It is agreed that Purchaser [Ceglia] will own a half interest (50%) in the software, programming language and business interests derived from the expansion of that service to a larger audience.”

2. As a matter of law, the Agreement established a general partnership between Ceglia and Zuckerberg for the development and commercialization of “The Face Book,” the concept and website with the initial title of “thefacebook.com” and the business interests derived therefrom (the “General Partnership”). As described in the Agreement, Ceglia contributed capital to the General Partnership. And, according to the Agreement, Zuckerberg contributed the software, programming language and website in its then-current form that he had started to design to offer the students of Harvard University access to a website similar to a live functioning yearbook with the working title “The Face Book.” The course of conduct between Ceglia and Zuckerberg, after the formation of the General Partnership, shows Ceglia also contributed his time, ideas, knowhow and other “sweat equity” to the General Partnership. As described in the Agreement and the course of conduct after the formation of the General Partnership, Zuckerberg also contributed his time, ideas, knowhow and other “sweat equity” to the General Partnership. Their respective contributions resulted in the creation of software, programming language, a website, other intellectual property and business interests, all of which became property of the General Partnership — of which the parties intended and the Agreement specified that Ceglia is the 50% owner.

Business Insider has provided the contract and the emails behind Ceglia’s claim and analyzed them.

The Telegraph notes that in addition to these suits, the 2009 settlement for an undisclosed amount with Facebook co-founder, Eduardo Saverin, has already damaged Zuckerberg’s reputation, irrespective of the merit of any of these claims, something worth considering if Facebook goes public.

According to Prof. Adam Pritchard of Michigan Law, that offering might occur sooner than expected because of Rule 12g5-1 of the Securities Exchange Act of 1934.

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