Friday, February 13, 2009

Facebook pays US$65m to settle rival’s claim

NEW YORK, Feb 13 — Facebook paid US$65 million (RM234 million) to squash allegations that its founder, Mark Zuckerberg, stole the idea that has grown to become the world's largest social networking site, with more than 150 million users, it has been revealed.

The site was sued in 2004 by ConnectU, a company founded by former friends of Zuckerberg at Harvard. A deal was agreed last year, but until now its terms had been secret. Divya Narendra and twins Cameron and Tyler Winklevoss claimed Zuckerberg had worked on their concept of a social networking website for students at America's oldest university, and stolen the idea to build his version.

ConnectU said it deserved a substantial slice of the credit for Facebook, claiming it was worth US$15 billion.

Facebook wanted the details of the protracted legal battle kept confidential. It had reporters removed from a California court so talks could go on in secret.

This week, however, the law firm that represented ConnectU, Quinn Emanuel Urquhart Oliver & Hedges, sent a newsletter to clients saying Facebook paid US$20 million and handed over 1.2 million shares of common stock, valued at US$45 million by the court. The firm said it had revealed this in error.

The US$15 billion valuation of Facebook had been based on Microsoft's decision to pay US$240 million for a 1.6 per cent share in October 2007. That deal, much talked about, saw it fight off rivals Google and Yahoo.

According to court documents, Facebook's lawyers in its battle with ConnectU argued it was in reality worth far less than what Microsoft was prepared to pay, and hence the settlement should be substantially lower. Facebook, still privately held, valued itself at US$3.7 billion; as a result, ConnectU's share settlement should be US$11 million.

The figure, in an internal appraisal, was discovered by reporters from the Associated Press after a computer error. Unfortunately for Facebook it was Microsoft's valuation that was used by the court.

"US$65 million is a significant sum — it's certainly more than the cost of the defence," said Chris Scott Graham, an intellectual property lawyer with Dechert. "But it's a very small percentage of Facebook's valuation."

Since the two were founded in 2004, they have gone on to wildly divergent fortunes. ConnectU has fewer than 100,000 users, and the twins have instead made careers as rowers — they came sixth in the men's pairs at the Beijing Olympics.

They are disputing the US$13 million fee due to their law firm because it broke an agreement to keep the deal secret. The firm said it was an error. "Our PR people released something and it didn't get caught by the people who knew," said a spokesman. "We had a policy against talking publicly about this case." — The Guardian

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