Facebook has finally closed the book on its long-running, multi-front legal battle with the rival college social network ConnectU — but not before a new question was raised about Facebook’s supposed $15 billion valuation.
Late Wednesday, Judge James Ware of Federal District Court in San Jose, Calif., sided with Facebook, enforcing a February settlement between the companies and dismissing ConnectU’s allegations that Facebook fraudulently misrepresented the value of the stock in the settlement agreement.
The Facebook-ConnectU case, which undermined the reputation of the founder Mark Zuckerberg for ingenuity and honesty, was a publicity nightmare for the social networking site and a boon for reporters fascinated by the Palo Alto, Calif., company.
Mr. Zuckerberg’s former Harvard classmates, the twins Cameron and Tyler Winklevoss and Divya Narendra, accused Mr. Zuckerberg of stealing their idea while they were all undergraduates. The ConnectU founders fought right to the end, settling the dispute in mediation, then contesting the settlement and battling with the lawyers who had represented them in the talks.
A couple of interesting items from Judge Ware’s decision enforcing the settlement:
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ConnectU was apparently upset that Facebook’s valuation is not, as media reports have widely suggested, $15 billion, the valuation at which Microsoft invested in the company last year. The judge’s ruling says that subsequent to the $15 billion valuation, “Facebook’s board of directors determined a value of the company’s shares which was different than the valuation disclosed in the press release” announcing the Microsoft investment. That diluted the settlement amount, apparently enough to give ConnectU second thoughts. The decision does not reveal Facebook’s current valuation.
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Howard Winklevoss — a former professor of actuarial science at the University of Pennyslvania, father of the ConnectU twins and a ConnectU shareholder — was clearly a force behind the dispute. ConnectU tried to argue that since he did not sign the settlement, it was not valid. Judge Ware rejected that argument.
Facebook itself issued a statement last night, breathing a sigh of relief:
We are happy that Judge Ware enforced the agreement settling our dispute with the ConnectU founders. ConnectU’s founders were represented by six lawyers and a professor at Wharton Business School when they signed the settlement agreement. The ConnectU founders understood the deal they made, and we are gratified that the court rejected their false allegations of fraud. Their challenge was simply a case of “buyer’s remorse,” as described by the Boston court earlier this month.
We were disappointed that we had to litigate the settlement, as we believed we were caught in the middle of a fee dispute between ConnectU’s founders and its former counsel. Nevertheless, we can now consider this chapter closed and wish the Winklevoss brothers the best of luck in their future endeavors.
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