Valleywag
Earlier this week, CNBC asked me to come on the air to discuss Facebook's legal woes. I've spent days immersed in legal filings, and the clip, above, just scratches the surface of what I've learned. Next week comes a critical moment for Facebook, the red-hot social network that has captured Silicon Valley's imagination, and its founder and CEO, Mark Zuckerberg. After the jump, I explain why Zuckerberg will face a moment of reckoning next Wednesday, July 25, and detail a timeline of Facebook's legal battles.
In November 2003, as a student at Harvard University, Zuckerberg fell in with three classmates who were working on a new idea: ConnectU, a set of interlinked social networks for people at a single college. Zuckerberg did some work for them, but then launched his own website — what's now known as Facebook. The result: A lawsuit that just won't end. Next Wednesday, in a Boston courtroom, Zuckerberg's lawyers have their best shot at making it go away for good, at a hearing on a motion to dismiss the lawsuit.
Legal experts say that Zuckerberg's best shot is to get the suit dismissed on a technicality, by making a claim that the statute of limitations ran out on his opponents' charges on February 4, 2007, three years after Zuckerberg first launched Facebook.
That's a tough one, but more likely than the alternative, which is getting it dismissed on the substance of the case. One lawyer described ConnectU's charges as "squishy," which sounds bad — but in a hearing on a motion to dismiss, squishy is actually a good thing. If there's any doubt on whether a claim is valid, in such a hearing, the judge's inclination will be to let it go forward to trial. And a trial, with all its uncertainty, is the last thing Zuckerberg needs, with his stated plans to keep Facebook independent and apparent goal to pursue an IPO.
It all comes down to timing, then. With that, here's how Zuckerberg got into this legal spot. Anything missing? Let me know in the comments, and I'll update it.
December 2002: Harvard students Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra conceive of a college social network and hire Sanjay Mavinkurve to work on what later becomes ConnectU
May 2003: Mavinkurve graduates from Harvard, with the site still unfinished; Victor Gao, another Harvard student, later picks up work on the site
November 2003: After Gao leaves the project, ConnectU's founders hire Mark Zuckerberg to work on Harvard Connection, a website that later became ConnectU
January 11, 2004: While still promising to finish Harvard Connection, Zuckerberg registers the domain for thefacebook.com, a fact that the ConnectU founders allege that didn't disclose in a meeting three days later
February 4, 2004: Zuckerberg launches thefacebook.com
April 2004: Facebook expands to other colleges
April 13, 2004: Zuckerberg, Dustin Moskowitz, and Eduardo Saverin form Thefacebook.com LLC, a partnership (despite this, Saverin is not credited today as a founder by the company)
Spring 2004: ConnectU hires a Web-development firm, iMarc
May 2004: Cameron Winklevoss allegedly emails his father detailing a plan to steal email addresses from Facebook's website
May 2004: Having appealed to Harvard administrators, without success, to rule that Zuckerberg violated the school's honor code, ConnectU's founders appeal to Harvard president Larry Summers, who also rebuffs them
May 21, 2004: ConnectU launches its first website, Harvard Connection
June 11, 2004: ConnectU's founders allegedly ask iMarc to write a script that automatically logs into the Facebook website and harvests users' email addresses; iMarc refuses
July 22, 2004: ConnectU's founders allegedly send thousands of emails to Facebook users inviting them to join ConnectU
September 2, 2004: ConnectU files a lawsuit against Zuckerberg and other Facebook founders
February 2005: Facebook blocks ConnectU's alleged continued attempts to harvest emails from its website
May 26, 2005: Accel Partners invests $13 million in Facebook
August 23, 2005: Facebook, at bad-boy entrepreneur Sean Parker's instigation, buys the facebook.com domain name for $200,000
October 14, 2005: Facebook's founders file a motion to dismiss ConnectU's lawsuit
September 11, 2006: Facebook allows any user with an email address to join the site, and its user base begins to grow explosively
March 9, 2007: Facebook files a countersuit against ConnectU, charging it, among other things, with violating antispam laws
March 28, 2007: A court dismisses ConnectU's original lawsuit, without prejudice, allowing ConnectU to immediately file a new lawsuit against Facebook's founders as well as the company itself
June 23, 2007: Court grants a hearing on a motion to dismiss ConnectU's lawsuit against Facebook, scheduled for July 25
Comments
Do you even understand that the real advertising- and ad revenue- is going on in the Newsfeed, not in those banner ads?
WHY ISN"T MY LOCAL NEWS LIKE THIS!?
@TheTypeset: That's what Facebook enthusiasts with their blinders on say, but I have yet to meet an advertiser who can cite response rates or return on investment for in-feed campaigns. It's a nice theory, but until I see real numbers, I'm more convinced of the potential of Facebook's virtual-goods sales. At least those I can measure.
@bengold: Ben, locate the caps-lock key. Over there to your left. Turn it off. Thanks.
@owen thomas: ok
If they have 1) a work-for-hire contract signed by Zuckerberg, 2) Zuckerberg did work under that contract for which he was paid, and 3) the plaintiffs can show that Facebook is based on that work-for-hire then they might have a case.
Given that this case was already dismissed once I'm guessing they lack one or more of those elements.
My guess if they didn't have 1 and 2 then the case would have been dismissed with prejudice, I bet they have a contract and Zuckerberg did work for them. 3 is much fuzzier. My guess is they can't prove Facebook was based on that work. Unless all the original code lives in CVS somewhere they never will be able to prove it.
Anybody have links to the actual legal filings, Smoking Gun style?
Great job Owen, you sure know your stuff.
I agree with you regarding Facebooks advertising woes. As you point out, most advertisers are citing horrible click-through rates and overall conversions.
There is of course other value in the amount of members they have however. Companies like Microsoft probably have a good idea of how to harness that power. Or not...
@rfhoward: Look above. I linked to a few of the relevant legal documents. I'll keep linking to new filings as the case progresses.
@Ian Bell: Thanks, Ian. Must confess I'm intrigued by Facebook's virtual-goods business, though that's mostly because of the can of whoop-ass Sarah Lacy sent me.
Owen-
I appreciate your contrarianism, etc. But does Valleywag measure ads on a CPC basis? If you go to Gawker advertising, you'll find that your rates, at least, are CPM. Now, on my Facebook application, I can get 100 percent demographic efficiency for my CPM displays. Valleywag can display to primarily silicon valley people. But, if I want, I can only display to people in the Yahoo network. Now, which is a more effective advertising vehicle?
Nevertheless (this wouldn't fly on Gawker at all), good job digging up stories on this kinda tough beat....it's been cool to read, even if I disagree with your FB analysis.
My sources already informed me,(Case will definately be dismissed).And as "Baretta use to say" YOU CAN TAKE THAT TO THE BANK!!!
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