Biglaw, Facebook, Social Networking Websites, Technology

The Facebook Lawsuit That Wasn’t In The Movie

Thanks to Ben Mezrich, David Fincher, and Aaron Sorkin, we all feel like we know the backstory of the creation of Facebook (shameless plug: please like the ATL Facebook page). It goes something like this: Mark Zuckerberg was a shady little brat, who screwed over his one friend while he was building what would become a multi-billion-dollar company. Roll credits.

Legally, just yesterday it seemed that Zuckerberg and Facebook were finally in the clear. The Ninth Circuit told the amazingly privileged Winkelvoss twins to go away, and it appeared that everybody could go back to masturbating to Facebook friends without worrying about who really owned the thing.

But not so fast. There is another outstanding Facebook lawsuit that has recently been amended and refiled in federal court. We’ve reported before on the claims of fraudster Paul Ceglia. Now he’s back, and he’s got some explosive new evidence to support his claims to 50% ownership in Facebook — as well as new counsel.

Is the evidence credible? It depends: do you trust DLA Piper?

For those of you who don’t know who Ceglia is because he wasn’t in the movie, here’s a quick summary. Almost a year ago, Ceglia produced a contract that seemingly entitled him to an 84% ownership stake in Facebook. The contract was allegedly signed by Zuckerberg when he was still a student at Harvard. Ceglia claimed that he paid Zuckerberg a few thousand dollars to do coding for Ceglia’s project (something called “StreetFax”) and Zuckerberg’s “the Facebook” project.

Zuckerberg and Facebook dismissed the contract as a forgery. That’s a credible claim because Ceglia has actually been arrested for fraud in an unrelated matter. And it’s also notable that it took Ceglia seven years to “remember” that he was sitting on a contract that theoretically entitled him to billions of dollars.

That’s where things stood back in June. But now Ceglia has refiled his lawsuit with the help of DLA Piper. This time, he’s got emails (!), purportedly from Zuckerberg, showing the two discussing the arrangement. Business Insider picks up the story from here:

In these purported emails, which we have included below, Zuckerberg and Ceglia discuss “the face book” project in detail. They discuss how Ceglia will fund the project. They discuss how Ceglia has funded the project (proof of payment). They discuss how Zuckerberg has met some upperclassmen — the Winklevosses, presumably — who are pursuing a similar project, and how Zuckerberg is “stalling” them. They discuss how Zuckerberg has failed to complete the “face book” project on time. They discuss the launch of the face book, which Ceglia agrees looks great.

The emails then include Zuckerberg telling Ceglia that the Facebook site is not doing well. They include Zuckerberg telling Ceglia that the site has seen so little success that Zuckerberg is thinking of shutting it down. And, in the summer of 2004, they include Zuckerberg offering to send Ceglia his $2,000 of funding back — right at the time Zuckerberg had moved to California to continue to develop, incorporate, and raise money for Facebook.

Ceglia contends that most of what Zuckerberg told him after the launch of the site were lies. (Facebook, as we all now know, went gangbusters right from the beginning.) And Ceglia contends that, in the summer of 2004, Zuckerberg “misappropriated” the assets of their general partnership and conveyed them to the corporation that became Facebook, Inc.

You can read all the emails on Business Insider. They are pretty interesting and one can totally see Jesse Eisenberg acting this out. Whether or not Mark Zuckerberg sent these emails is an entirely different question, isn’t it?

On Business Insider, Henry Blodget declares his faith in the investigative talents of DLA Piper:

DLA Piper took on Ceglia’s case very recently, after performing “weeks” of due diligence to persuade itself that Ceglia’s claims were valid.

As part of its due diligence process, DLA Piper says, it performed an electronic analysis of the contract Ceglia provided. The firm says this analysis made it confident the contract has not been doctored…

We think that, if the emails and contract Ceglia produced are indeed fake, the fraud should be easy to expose (so easy, in fact, that we imagine DLA Piper’s investigators would already have exposed it — which leads us to question whether the emails and contract really are fake). We also think that, if the emails are fake, Paul Ceglia will be going to jail for a long, long time — a consequence that we assume was not lost on him.

If they say so. Though for what it’s worth, the contract that DLA analyzed seems like a piece of garbage anyway. Initially Ceglia claimed it entitled him to an 84% stake in the company; now the figure is down to 50%, and the funny thing is that if you believe the alleged emails, then the alleged contract is essentially moot. If you think the emails are forged, then the contract becomes more interesting, though how can you believe the contract if the emails are a lie?

To me, it all seems a little too convenient. Zuckerberg admits that he was working with Ceglia on this StreetFax nonsense. If you read through the emails, at various points it looks like they could be talking about the StreetFax thing — it wouldn’t take a lot of fabrication to change the sense of these emails from a StreetFax conversation to a Facebook conversation. I probably couldn’t change these emails to evade a forensics expert hired by DLA Piper, but then again, I’m not a professional con artist (like Ceglia is alleged to be).

Why am I so cynical about Paul Ceglia’s claims? Because it took him this long to file them. Say what you want about the artistic license taken in The Social Network, but I believe that the movie got at least one essential thing right: if you think this little pissant Mark Zuckerberg stole your idea you become immediately enraged. Eduardo Saverin sued. The Winklevosses sued. Yet this Ceglia guy took seven years to make his claim? That doesn’t make sense.

It might also be outside the statute of limitations, which would be an easy way to make this all go away. Here’s DLA’s argument that Ceglia’s claim is timely:

DLA Piper says the lawsuit is well within the statute of limitations in New York, which is 6 years from the breach of contract. DLA regards the “breach of contract” as Mark Zuckerberg’s incorporating Facebook in July 2004 and conveying the assets of the Ceglia-Zuckerberg partnership into the new corporation without telling Ceglia. The lawsuit, meanwhile, was filed in early summer 2010.

But Facebook went live well before July 2004. And if you believe the emails, Zuckerberg was telling Ceglia to screw off long before July 2004, so I’m not entirely sure July 2004 is when the clock starts running.

In fact, the only thing I am sure of is that Ceglia has been arrested for fraud and has a billion motives to lie.

Then again, I’m not on Facebook’s payroll. And this Zuckerberg kid sure seems like a dick. Screw it, I’m suddenly remembering that one time I sat down with Zuckerberg in 2003 at Pinocchio’s.

The Guy Who Says He Owns 50% Of Facebook Just Filed A Boatload Of New Evidence — And It’s Breathtaking [Business Insider]

Earlier:Chief Judge Kozinski to the Winklevii: Please Go Away Now
The Facebook Lawsuit: Everybody Calm Down and Remember Your 1L Contracts Class

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