August 05, 2010
Another Crazy Facebook Lawsuit
Posted by Gordon Smith

Gearing up for the Facebook movie in October, I am reading The Facebook Effect: The Inside Story of the Company That Is Connecting the World by David Kirkpatrick. As I have mentioned before, I love business histories, and this one is very good, even if Kirkpatrick falls victim to the bane of many business historians: infatuation with the subject company. 

Only one-third of the way through the book, I am surprised by the number of legal actions generated by Zuckerberg and his merry men. (So far in the story, all of the employees of the company are men.) We have heard a lot about the Winklevoss/Narendra claims, and the book mentions several other people who lay in Facebook's wake. 

But it doesn't mention Paul Ceglia, the man who now claims to own 84% of Facebook based on a contract that Mark Zuckerberg signed in 2003. You can see a copy of the contract Ceglia filed with the court here. Take a look at Paragraph 3, which states, "The agreed upon completion for the expanded project with working title 'The Face Book' shall be January 1, 2004 and an additional 1% interest in the business will be due the buyer for each day the website is delayed from that date." Ceglia claims that Zuckerberg was late with his work, but eventually delivered after Celia had reached an 84% ownership share.

Facebook's response to this claim has been less than confident. Originally Facebook's lawyer told a federal district court judge, "Whether [Mark Zuckerberg] signed this piece of paper, we're unsure at this moment." The next day, Zuckerberg was trying to clarify that statement: "If we said that we were unsure, that was likely taken out of context, because I think we were quite sure that we did not sign a contract that says they have any right to ownership over Facebook." The following day, Facebook gave it one more try, this time through a company spokeman:

Mark has made it clear that Ceglia's claims are absurd and we strongly suspect the contract is forged. However, we have not seen the original (no one has, including the court). Thus, we're focusing on the things that are not open to interpretation and are indisputable--Mark could not have given interest in a company that didn't exist or and idea he had not thought of yet and, even if he could, the statute of limitations has expired.

"Strongly suspect the contract is forged"?

On the other side, Ceglia claims that he simply forgot about the contract, but he discovered it recently when looking through his files as he prepared to defend himself against charges of fraud in connection with his wood pellet business. Plenty of reporters are looking into Ceglia checkered business career, but I suspect his 15 minutes of fame have almost expired, even if the contract is authentic. Even if Zuckerberg had a project called "The Face Book" that somehow involved Ceglia, it seems unlikely to me that the same project ultimately became "TheFacebook" (and later just "Facebook").

The other twist in this story is that another person is claiming to own Facebook through Paul Ceglia: "Andrew Logan, StreetDelivery’s founder and CEO ... claimed Ceglia was under contract to StreetDelivery in 2003 when he set up StreetFax and hired Zuckerberg. If Ceglia’s contract with Zuckerberg gives Ceglia an ownership interest in Facebook, that interest may belong to Logan, he said.... 'We’re going to lay claim that I own it,' said Logan. 'He was under contract to me."

Don't get your hopes up, Andrew.

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