Get it in writing… especially if you’re a co-founder of Facebook

untitled.bmpThere seems to be a run on litigation by co-founders of Facebook. So if you’re one of them, get in line. As John F. Kennedy observed “Victory has a thousand fathers, but defeat is an orphan.” The many technology business ventures that have died and withered away had parents who are now too busy with other things to dig through seven-year old emails or back-of-napkin agreements. However, for the Facebooks of the world, there will always be co-founders to contend with. 

Made famous in the popular movie The Social Network, the Winklevoss brothers recently settled (or were told to accept settlement for) their “zombie lawsuit” against Facebook for roughly $65 million. Eduardo Saverin settled his own claim. Next in line is Paul Ceglia, a man who recently stunned observers when he retained a high-powered law firm, refiled his claim for 50% of Facebook and produced evidence – including seven-year old emails and a back-of-napkin agreement – to support the allegations.  In the lawsuit Ceglia claims that, under a 2003 contract between him and Mark Zuckerberg, he owns at least 50% and up to 84% of Facebook. Facebook was founded in 2004 and now has a market capitalization of $50 billion+ and more than half a billion active users. [See: Ceglia v. Zuckerberg and Facebook, Inc., No. 10-CV-569A, United States District Court, W.D. New York, in which Facebook won a preliminary skirmish over jurisdiction.]  The lessons for business?

  • The term “get it in writing” can cut both ways. A written contract can breathe life into an otherwise unlikely claim such as Mr. Ceglia’s. Depending on its content, it can also protect a start-up company when intellectual property ownership claims come out of the woodwork. Start-up technology companies should ensure their critical intellectual property does not become encumbered with early-stage promises about joint ownership or perpetual revenue sharing.
  • The “paper trail” should be analyzed and cleared in the course of various early-stage investments and transactions. When an early-stage company is an acquisition target, or it receives a substantial investment, it is common for all of these ownership issues to be flushed out and addressed in the course of the transaction.

Calgary – 07:00 MDT

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