Facebook settles legal dispute over site idea

 

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By Reuters

Posted on 27 Jun 2008 at 08:19

Facebook has agreed to pay an undisclosed amount of cash and stock to settle a long-running legal battle over whether founder Mark Zuckerberg stole ideas for the site from fellow Harvard students.

The case saw Zuckerberg pitted against former Harvard classmates and one-time US Olympic team rowing hopefuls Cameron and Tyler Winklevoss.

Both parties agreed to a tentative settlement deal in February, according to the court papers.

The settlement agreement was delayed by a subsequent challenge by the Winklevosses, who argued the deal was incomplete and that Facebook had committed fraud by failing to disclose crucial documents related to Zuckerberg's actions.

Judge James Ware of the US District Court for the Northern District of California rejected those claims and ruled the settlement is enforceable and ordered the parties to a 2 July hearing to determine how to carry out the deal.

Facebook, begun as an online version of the introductory picture book first-year students at Harvard received to get acquainted with fellow students, has exploded into a worldwide phenomenon over the past four years.

The dispute centered on accusations Zuckerberg copied ideas for Facebook after being hired as a Harvard University sophomore by the Winklevoss brothers and a third partner to write code for a site called Harvard Connection.

Through the settlement, Facebook effectively agreed to buy ConnectU, the successor company to Harvard Connection founded by the Winklevoss brothers, partner Divya Narendra, for cash and common stock.

Terms of the deal were confidential and the Winklevosses, Narendra and ConnectU agreed to make no future claims. The court agreed to seal the financial terms of the settlement.

Among the claims made by the Winklevosses in seeking to derail the settlement was that their father, Howard Winklevoss, an owner of a one percent share in ConnectU, had not been party to the agreement. Judge Ware ruled that, as a minor shareholder, his agreement to the settlement was unnecessary.

A spokesman for Facebook said the settlement deal, once finalised, would end separate, but related cases the two sides had been pursuing in courts in Boston and San Jose.

"The ConnectU founders understood the deal they made, and we are gratified that the Court rejected their false allegations of fraud," says Facebook in a statement. "Their challenge was simply a case of 'buyers remorse,' as described by the Boston Court earlier this month."

Facebook said it believed one factor holding up a settlement is a separate dispute between the Winklevosses and their original team of lawyers over their handling of the case. Facebook said it considered the ConnectU dispute closed.

Facebook had counter-sued, accusing the plaintiffs of breaking into its computers to steal member lists.

These lawsuits were first filed in September 2004 by the Winklevosses and ConnectU against Facebook, Zuckerberg and his co-founders. It alleged breach of contract and that Zuckerberg misappropriated trade secrets, among other complaints.

Thefacebook.com, as it was then known, was set up in early 2004 as a social site for Harvard students, but had already spread to other US college campuses, attracting hundreds of thousands of members by the time the lawsuit was first filed.

Court papers filed by ConnectU state that Zuckerberg agreed to work for Harvard Connection founders Cameron and Tyler Winklevoss and Divya Narendra, then dragged his feet before launching Thefacebook.com in February 2004.