Appeals Court Upholds Facebook Deal from 2008

The federal appeals panel rules that the deal between Mark Zuckerberg and Harvard colleagues Divya Narendra and Cameron and Tyler Winklevoss is valid and enforceable. 'At some point, litigation must come to an end,' a judge says. 'That point has now been reached.'

By Carol J. Williams, Los Angeles Times
04.11.11

A federal appeals court panel ruled Monday that a 2008 deal between Facebook founder Mark Zuckerberg and three former Harvard colleagues is valid and enforceable.

The decision upheld a negotiated agreement between Zuckerberg and the founders of a rival social-networking site, ConnectU, in their dispute over who came up with the Facebook idea by giving Divya Narendra and Olympic rowing twins Cameron and Tyler Winklevoss a share of the privately held company, deemed to be worth about $65 million at the time of the settlement three years ago. Because of Facebook's soaring value, that share is now worth in excess of $160 million.

In the opinion from Chief Judge Alex Kozinski, who wrote for the three-judge panel, he said: "The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook."

He concluded: "At some point, litigation must come to an end. That point has now been reached."

Lawyers for the ConnectU company, which Facebook acquires through the settlement, had argued that the twins and Narendra were fraudulently misled about the value of Facebook and that crucial details were omitted from the settlement, rendering it invalid. Facebook, now estimated to be worth more than $50 billion, is the world's largest social-networking site with 500 million members.

Facebook's legal team argued at the January hearing in San Francisco that it was the responsibility of the ConnectU owners to determine what Facebook was worth.

In a statement Monday, Facebook's deputy general counsel, Colin Stretch, said: "We appreciate the 9th Circuit's careful consideration of this case and are pleased the court has ruled in Facebook's favor."

The three 9th Circuit judges had expressed doubts at the hearing about the twins' claim that the deal was unenforceable for its lack of detail -- at one point noting that agreements written on scrap paper or the backs of napkins had been upheld in court.

The argument over who came up with the Facebook concept was the subject of last year's Oscar-winning film "The Social Network."