Media Money with Julia Boorstin

Facebook Faces Day In Court Over First Launch (update)

Everyone's talking about Facebook's new CFO, Gideon Yu, snatchedfrom YouTube, where he helped negotiate YouTube's sale to Google . Yu clearly knows how to find a buyer for a hot property, and Facebook is hot, it's been valued as high as $8 billion. But Facebookhas some other serious business going on today.

The hottest Internet property was under the microscope at a Federal Court in Boston today, in a hearing for a lawsuit that's been brewing for years. The lawsuit continues to draw out. The judge gave the plaintiffs--two of Zukerberg's former classmates and now competitors two weeks to amend their complaint to meet his concerns regarding the claims. August 8th is the next court date, and the defendants have until August 22nd to file a reply.

Here's the situation: Facebook founder Mark Zuckerberg's former Harvard classmates, Tyler and Cameron Winklevoss are suing Zuckerberg and his four other co-founders for stealing their idea. The Winklevoss twins founded Connect-U, a college based social networking site about four years ago. After working with some other program developers the then seniors asked Zuckerberg to partner with them and work on the site.

They met three times for an hour and traded over 50 emails, sharing their plans for the company and its source code. They say they were shocked when a few months after starting to work together they returned from the school's winter break to find an announcement in the paper that Facebook had launched. They went first to the university administration, and the then Harvard president Larry Summersurged them to take legal action. In September 2004 they filed the case that could get dismissed--or move forward--as of this afternoon.

Update: While the Winklevoss twins say Summers urged them to take legal action--a sporkesman for Summers says he didn't urge them to do anything.

Their arguement: they had an oral agreement, and their competitor steals their copyrighted material for the competitor's own site. What will the court decide? The case may hinge on the source code. If Facebook proves its code is original, it has the advantage. If not, Zuckerberg may have to hand over some big bucks. There's also the issue of the advantage Zuckerberg gained by being first out of the gate, and how much Zuckerberg's current success--Facebook has a whopping 29 million users--owes to the Winklevoss's ideas.

What of the Winklevoss twins? They seem to be doing just fine. They're both on the national rowing team, training for the Olympics in Princeton NJ. They just returned from the Pan Am Games where they snagged gold and silver medals. They're also continuing to run Connect-U, which has a mere 70,000 users. (They claim that losing 'first mover' advantage really hurt them by the time they launched four months after Facebook all their potential core users had already committed to the other site).

Whether they can bring home any of Facebook's gold, is now for the court to decide. I'll keep reporting on the judge's concerns, and how they'll affect the complaint.

Questions?  Comments?

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