A federal judge will consider next week whether to throw out a lawsuit that accuses Facebook.com founder Mark Zuckerberg of stealing the idea for the popular social networking site from three of his former Harvard classmates.
The lawsuit, originally filed in 2004, claims that Zuckerberg stole the idea, the source code and the business plan for Facebook in 2003 while working as a programmer for three former Harvard students, who were developing their own social networking site, now called ConnectU.com.
The July 25 hearing comes amid widespread speculation that there may be another top-dollar bid for Facebook, which reportedly rejected a nearly $1 billion buyout offer from Yahoo! last year. Facebook had nearly 28 million unique visitors as of June, up from 14 million in September, according to ComScore.
The 23-year-old Zuckerberg has said publicly that he plans to keep the company private. But, the lawsuit, if it survives the motion to dismiss, could disrupt any potential sale or initial public offering, because buyers or investors may be reluctant to get involved with a company facing ongoing litigation, analysts said.
That reluctance could create pressure to settle the case, said Eric Goldman, academic director of the High Tech Law Institute at Santa Clara University. "A good reason to settle is because you want to present a clean company to a potential buyer," he said.
Douglas McIntyre, editor of 24/7 Wall St., a financial news and opinion Web site, said, "Having a pending lawsuit that says the source code doesn't belong to the company makes it virtually impossible to do anything."
"This makes it imperative that they get the thing resolved," said McIntyre. "It's gone from a dirty, little secret to being, in the tech world, front-page news. It's clearly poisoned the well."
A Significant Idea
ConnectU's founders, Cameron and Tyler Winklevoss and Divya Narendra, are asking for unspecified damages, including any profits that Zuckerberg made from using their ideas and they are asking to have control of Facebook turned over to them.
"Facebook would not exist if not for [the] fact that he obtained our clients' source code, worked on our clients' Web site and got the idea of creating his own site, without telling them," said ConnectU lawyer John Hornick.
A Facebook spokeswoman said the company did not comment on pending litigation.
In court papers, though, the company defended itself, saying, "Only one of [the students] had an idea significant enough to build a great company. That one person was Mark Zuckerberg." Zuckerberg and his business partners, who are also defendants in the suit, have moved to dismiss the case.
The lawsuit alleges a variety of legal claims, including copyright infringement, stealing trade secrets, fraud and breach of contract. According to the complaint, the Winklevosses and Narendra hired Zuckerberg in 2003 to help develop ConnectU, then known as Harvard Connection, and gave him access to the source code and their business plans.
Without telling the Winklevosses, Zuckerberg registered thefacebook.com on Jan. 11, 2004, three days after sending them an e-mail promising to deliver a "functioning Web site" for Harvard Connection, court papers say. Zuckerberg launched Facebook Feb. 4.
"We know he was working on his Web site while he was working on our clients' Web site," Hornick said. "There's no evidence that he had this idea before he met our clients."
ConnectU launched in May 2004, and has struggled to compete with the far more popular Facebook. The Winklevosses and Narendra sued Facebook in September 2004. The case was dismissed on technical grounds earlier this year, but ConnectU's lawyers promptly filed another lawsuit.
Pressure to Settle?
The costly legal battle began three years ago, before Facebook exploded in popularity and value, and it is not clear how much money the plaintiffs will get if they win, said Goldman.
He said strength of ConnectU's claims would depend on how a jury decides the particular facts of the case.
Though the possibility of selling Facebook may create pressure to settle the case, the time and expense that has already gone into the lawsuit suggests that it may be about more than money, Goldman said.
"Given how much has been spent, this could be more of an emotional concern, someone feeling like they've been jilted," he said.
Hornick, the ConnectU attorney, said, "The only way [to settle] is if they make an offer large enough to make my client happy, and I don't know what that amount will be."
When the lawsuit was originally filed, "The idea was that it would quietly go away," said Noah Kagan, who left Facebook last year and who says he knows Zuckerberg and the Winklevosses. "Facebook is now going to have to address it."