Facebook Sued For 84% Ownership Stake - InformationWeek

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7/13/2010
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Facebook Sued For 84% Ownership Stake

Web designer Paul Ceglia says a 2003 contract entitles him to majority ownership of the social networking site.

Facebook has moved to overturn a recent temporary restraining order won by New York web designer Paul Ceglia, who filed suit against Facebook and company CEO Mark Zuckerberg, claiming an April 2003 contract now entitles him to an 84% ownership stake in Facebook.

"We believe this suit is completely frivolous and we will fight it vigorously," a Facebook spokesman said in a statement. Facebook and Zuckerberg have 30 days to respond, according to court documents.

On July 9, Allegany Court judge Thomas P. Brown; Ceglia's attorney, Paul Argentieri of Hornell, N.Y.; and Facebook attorney Lisa T. Simpson of New York, spoke via conference call, according to the local newspaper the Wellsville Daily. During that conversation, Judge Brown continued a temporary restraining order that prevents Facebook from transferring assets while the case continues.

Simpson filed a "notice of intent" to move the case away from the U.S. District Court for the Western District of New York in Buffalo, according to the Wellsville Daily.

Under the seven-year-old contract signed by Zuckerberg and Ceglia, the designer received $1,000 and a 50% stake in the site which eventually became Thefacebook.com, according to the suit. The lawsuit also says Ceglia is entitled to "an additional 1% interest in the business for every day after Jan. 1, 2004, until it was completed."

Terms of the work for hire contract state, "It is agreed that Purchaser [Ceglia] will own a half interest (50%) in the software, programming language, and business interests derived from the expansion of the service to a larger audience."

In papers filed with the Allegany, N.Y., County Court on June 30, Ceglia seeks a declaratory judgment and relief in the form of monetary damages and 84% ownership -- worth between $5.6 billion and $9.24 billion -- of the social networking giant, based on Facebook's estimated value of between $6.5 billion and $11 billion. Zuckerberg's personal fortune is worth between $4 billion and $5 billion, according to published reports.

After registering thefacebook.com domain in January 2004, Zuckerberg launched TheFacebook site a month later, signing up 1,200 Harvard students within about 24 hours, legend goes. In August 2005, the site officially became Facebook.com after the URL was purchased for $200,000, and 13 months later it expanded beyond educational institutions into a more general audience, accepting anyone older than 13 with a legitimate e-mail address.

This is not the first time Zuckerberg and Facebook have come under legal attack. In 2007, Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra, co-founders of ConnectU, took on their former Harvard classmate, claiming Zuckerberg took Facebook's software code and business plan from them. The parties reached a confidential agreement in 2008, although after a subsequent series of legal actions based on questions regarding the value of Facebook, a new agreement was reached, granting ConnectU $65 million in Facebook stock and cash.

Nor is it the first time Ceglia has dealt with the court system. Last year, New York attorney general Andrew Cuomo obtained a temporary restraining order against Ceglia and his wife Iasia, and accused them of defrauding customers of Allegany Pellets, their wood-pellet fuel company, according to the attorney general's office. The company took more than $200,000 from customers but failed to deliver products or refunds, the state said in a statement. That case is ongoing.

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