Facebook Settles Accusations

A California-based legal publication revealed Tuesday that Facebook.com paid $65 million to settle accusations that its founder Mark E. Zuckerberg ’07 stole elements from rival social networking site ConnectU to create his multi-billion dollar Web site.

The Recorder obtained the information from an inadvertent disclosure in the January newsletter of Quinn, Emanuel, Urquhart, Oliver and Hedges, the law firm that represented ConnectU until it was fired last spring.

In 2004, ConnectU founders Cameron S. H. Winklevoss ’04, Tyler O. H. Winklevoss, ’04, and Divya K. Narendra ’04, filed a lawsuit against Facebook alleging that Zuckerberg used their code to create his now well-recognized social networking Web site. He had worked for them as an undergraduate.

The firms settled the case last April, intending to keep the figure confidential. In June, the Winklevoss brothers and Narendra appealed to a San Jose district judge, stating that they were mislead into accepting stocks worth less than Facebook purported. In a move characteristic of the secrecy surrounding the settlement, Judge James S. Ware asked reporters to leave the courtroom during the proceedings. Ultimately, he rejected ConnectU’s appeals.

With the figure now out in the open, media sources continue to speculate on the reasons for the settlement, as well as the settlement itself.

“Sixty-five million dollars is a significant sum—it’s certainly more than the cost of the defense,” Chris S. Graham, an intellectual property litigator, told The Recorder. “But it’s a very small percentage of [Facebook’s] valuation and therefore could be argued by Facebook to be a payment based on considerations other than the merits of the claims.”

According to recent estimates by the Web site Silicon Alley Insider, Facebook, Inc. was valued at $4 billion.

Harvard Law School Professor Phillip R. Malone ’81, the director of HLS’s Cyberlaw Clinic at the Berkman Center, said that the settlement was smaller than ConnectU may be entitled to should their claims be true. He said parties often consider more than the just the odds of winning when deciding whether to settle.

“[The situation] was becoming a taint on Zuckerberg’s reputation,” he said. “Sometimes businesses decide it’s best to settle this type of thing.”

A spokesman from Quinn Emanuel declined to comment, citing the firm’s policy. Representatives from ConnectU and Facebook could not be reached yesterday.

—Staff writer Sean R. Ouellette can be reached at soullet@fas.harvard.edu.