April 12, 2011

Facebook Fight: Cameron and Tyler

The fight between Facebook and ConnectU founders Cameron and Tyler Winklevoss spawned more judicial proceeding Daily stories than we can count, not to mention huge legal fees and an award-winning Hollywood film.

A 3 judges panel of the U.S. Court of Appeals for the Ninth Circuit had denied the Winklevoss twins challenge to their reported $65 million Facebook settlement with a pang of nostalgia. Could this really be the end of the line for the twins' in their showdown with Facebook?

"At some point, litigation must come to an end," Chief Judge Alex Kosinski wrote for the 3 judges circuit panel. "That point has now been reached."

But there may be a final chapter. Jerome Falk of Howard Rice Nemerovski Canady Falk & Rabkin, who represented the Winklevosses before the Ninth Circuit, said in a statement that he'll ask the full Ninth Circuit to reconsider Monday's decision. "In my judgment, the opinion raises extremely significant questions of federal law that merit review by the entire Ninth Circuit Court of Appeals," Falk said. "For that reason, my colleagues and I will file a Petition For Rehearing En Banc within the next fifteen days."

As our readers and fans of The Social Network know well by now, the Winklevosses accused Facebook founder Mark Zuckerberg of stealing their ideas after they hired him to write computer code for their Harvard social-networking site. In 2008 Facebook bought ConnectU and agreed to settle with the twins for a reported $65 million in cash and Facebook stock. But later that year the Winklevosses claimed that Facebook had hidden the true value of its shares in violation of securities laws and that the deal should be rescinded.

San Jose federal district court judge James Ware didn't buy that argument in 2008, and neither did the Ninth Circuit. In affirming Judge Ware's decision to enforce the settlement, the Ninth Circuit panel noted that the Winklevosses are "sophisticated parties" who "brought half-a-dozen lawyers" to their mediation with Facebook. "With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity," the panel wrote. "For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so."

The Ninth Circuit panel rejected the Winklevosses' claims that they were duped into believing that Facebook's shares were four times as valuable as they actually were, finding that Judge Ware correctly excluded statements made by Facebook during settlement negotiations. The panel disagreed with Judge Ware's reasoning for excluding the evidence, but found that it was protected by a confidentiality agreement signed by the parties. "Without such evidence, securities claims must fail," the panel concluded.

Facebook counsel E. Joshua Rosenkranz of Orrick, Herrington & Sutcliffe wasn't available when we reached his office Monday to ask about the ruling.

However, Facebook and its lawyers aren't the only ones breathing a sigh of relief after Monday's ruling. As we've reported, the Winklevosses' former lawyers at Quinn Emanuel Urquhart & Sullivan have been fighting since 2008 to get their hands on a $13 million contingency fee for the firm's work on the Facebook settlement. Manhattan state supreme court justice Richard Lowe III confirmed the award in November 2010, but Judge Ware ordered the fees to remain in escrow pending the outcome of the Ninth Circuit appeal.

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