Facebook founder faces another lawsuit

The day after Facebook CEO Mark Zuckerberg banked a court victory over the Winklevoss twins who claim that he stole their idea for a social networking platform, Zuckerberg became the subject of another lawsuit by a former collaborator and employer who claims that he is entitled to 50 percent of the company.

According to court filings, an upstate New York wood pellet manufacturer Paul Ceglia employed Zuckerberg in 2003 to write codes for an online database he was developing called StreetFax.com, and the then-Harvard student invited him to invest and collaborate on a project called “The Face Book.” At the time, Ceglia and Zuckerberg allegedly inked a contract where Zuckerberg would be paid $1,000 for StreetFax.com coding work, plus $1,000 in seed money for the social networking project. The contract has not yet been deemed legitimate by the courts, but according to legal documents, it states that Ceglia (the Purchaser) is entitled to 50 percent of the company Zuckerberg (the Seller) was in the process of developing:


[I]t is for the continued development of the software, program and for the purchase and design of a suitable website for the project Seller has already initiated that is designed to offer the students of Harvard university (sic) access to a wesite (sic) similar to a live functioning yearbook with the working title of “The Face Book.”

It is agreed that Purchaser will own a half interest (50%) in the software, programming language and business interests derived from the expansion of that service to a larger audience.


Ceglia first filed a lawsuit last summer, but it was dismissed both by the courts (over jurisdictional issues and the court of public opinion (some considered the suit “preposterous”). Commentators noted that Ceglia appeared to lack credibility because he was convicted of fraud related to his wood pellet company, and when he was asked why he waited seven years to file suit, he said that he forgot about the deal.


But Ceglia has now returned to court armed with a new legal team—including legal heavyweights DLA Piper and a former New York attorney general. The latest court filing is something of a bombshell, and it has Silicon Valley observers wondering if the Ceglia lawsuit might just be legit.


In particular, the complaint outlines a number of seemingly damning emails between Ceglia and Zuckerberg. Some spiral into angry exchanges—Ceglia threatens to contact Zuckerberg’s parents when he fails to deliver on some code—and others appear to make reference to the contract between the two web developers, including this from Zuckerberg [PDF]:


Paul, I have a rather serious issue to discuss with you, according to our contract I owe you over 30% more of the business in late penalties which would give you over 80% of the company. First I want to say that I think that is completely unfair because I did so much extra work for you on your site that caused those delays in the first place and second I don’t even think it is legal to charge such a huge penalty. Mostly though I just won’t even bother putting the site live if you are going to insist on such a large percentage. I’d like to suggest that you drop the penalty completely and that we officially return to 50/50 ownership.


A Facebook attorney says that the Ceglia suit is “fraudulent” and “ridiculous.”


Clearly, the stakes are high. If Ceglia is indeed, a farce, then he’ll face serious consequences—and law firm DLA Piper may lose its shirt. But if Ceglia’s claims are true, he’ll likely take a handsome settlement—certainly enough to allow him to take an early retirement from the wood pellet business.


Updated Date: May 26, 2011 12:11 PM

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