Contracts, Facebook, Social Networking Websites

The Facebook Lawsuit: Everybody Calm Down and Remember Your 1L Contracts Class

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The internet is on fire today. The purported contract between Facebook CEO Mark Zuckerberg and random New York resident Paul Ceglia has hit the worldwide web. We’ve written about Ceglia’s claims to 84% of Facebook before. But now that people have actually seen the document, everybody wants to talk about it.

I even ended up on Fox Business News, sharing my analysis of the Facebook contract.

As most lawyers know, just because you have a signed contract doesn’t necessarily mean you have anything. What was the bargain? Was there a meeting of the minds? Contracts aren’t always clear about what the parties are actually agreeing to.

This one, allegedly signed by Zuckerberg when he was a college sophomore, has lots of room for interpretation…

To see the full, two-page contract, click here.

Essentially the document is a “work for hire” contract in which Ceglia agrees to pay Zuckerberg money for the development of something called “The Face Book.”

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At one point, Zuckerberg couldn’t remember whether or not he signed such a document. Now Zuckerberg and his lawyers are claiming that the document is a forgery of some kind. Ceglia and his wife were arrested for grand larceny a couple of weeks ago, so you can’t totally discount the possibility that this is some elaborate shakedown.

But for the sake of argument, let’s assume that this contract is real and that the statute of limitations hasn’t run on the claim. What exactly does Ceglia have here? Over at Business Insider, Henry Blodget thinks that if the contract is valid, then Ceglia is about to become a very rich man:

This contract does not seem as though it could have been “doctored” to include the extensive language about “The Face Book” above (and elsewhere). Thus, the contract is either likely genuine or has been entirely forged.

Second, having now seen the contract, we now understand something that confused us about the early details… which is how Mark might have signed away interest in his own project while doing development work on an unrelated project. And the simple answer is… because $1,000 was probably a meaningful (if not impressive) sum to a college sophomore, and while bonding with Ceglia over the excitement of his own project, he might well have agreed to share it — especially in exchange for $1,000 of cash that would allow him to transform it from a fun idea into an actual working web site.

Not so fast, my friend. Sure, $1,000 is more than adequate consideration to induce a college sophomore to bargain away damn near anything. But if Mark Zuckerberg wasn’t trying to bargain away Facebook (or something that would become Facebook), and Ceglia wasn’t trying to purchase Facebook (or its predecessors), then Ceglia has no claim to Facebook, no matter how many times the contract refers to something as “The Face Book.”

All indications are that Zuckerberg and Ceglia hadn’t even conceived of anything that would become Facebook at the time of the contract. From Gawker:

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[I]t seems clear Zuckerberg hadn’t even thought of Facebook at the time he was hired for design work by plaintiff Paul Ceglia, who says that he gave Zuckerberg additional money as investment in a budding concept with the working title “The Face Book.” Zuckerberg didn’t register the Facebook domain name, an automatic first step for any budding Web entrepreneur, until nearly a year later after the supposed agreement with Ceglia. And he went off and launched an very different concept called FaceMash in the meantime. [Fortune writer David] Kirkpatrick writes that in his book he shows how Zuckerberg didn’t have the idea for Facebook until months after the alleged Ceglia agreement.

In view of this, it seems pretty unlikely that Zuckerberg sold an interest in a concept he hadn’t even thought of.

And if the contract was doctored or forged in some way, adding in copious references to “The Face Book” sounds exactly like the kind of idiot thing a non-lawyer would do to make it look like he was sitting on something valuable. “Oooh, I bought ‘The Face Book,’ and now there’s this thing called ‘Facebook.’ Gimmie money.” Whatever dude. The thing could have been called “The Boob Hunter.” If the parties intended to contract for what would eventually be called Facebook, the contract would hold up. If the parties did not intend to make such a bargain, then it really doesn’t matter what they used for a “working title” in the contract.

It’s entirely possible that Zuckerberg signed over 84% of Facebook way back in 2003. It’s entirely possible that Ceglia is a desperate man trying to get at some money he did not earn. Based on the information we have right now, we just can’t know.

Only non-lawyers ever think a contract is “clear” on its face.

Purported “Work for Hire” Contract between Paul Ceglia and Mark Zuckerberg
Facebook CEO Calls Lawsuit a Lie [Valleywag]
Facebook: Contract Giving Up Ownership Was ‘Forged’ [ABC News]
Analyzing The Facebook Contract: Is Mark Zuckerberg Screwed? [Business Insider]

Earlier: Facebook Wants to De-Friend State Court

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