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Internet Man Claims to Own 84% of Facebook
Shane McGlaun (Blog) - July 13, 2010 12:30 PM
Print 51 comment(s) - last by Mojo the Monke.. on Aug 4 at 7:35 PM
New York judge freezes Facebook assets

Facebook is no stranger to controversy. Typically, the controversy surrounds new changes to the social network's privacy standards. As the largest social network online, Facebook boasts many millions of users across the world.

The last legal proceeding having to do with the social network was identified when Germany sued Facebook for violating the privacy of its users. The accusation in the suit was that Facebook illegally accessed and saved personal data of those without a profile on the site.

A new suit has now been filed against Facebook and CEO Mark Zuckerberg by a New York man claiming to own 84% of the social networking giant. A judge presiding over the case has ordered Facebook assets frozen as the trial proceeds.

The man suing Facebook is Paul Ceglia. Ceglia claims to have a signed contract with Zuckerberg from 2003 to develop and design a website that later became thefacebook.com, which eventually turned into the giant Facebook we know today. The contract terms show that Ceglia was to get a $1,000 fee and a 50% stake in the final product.

Reuters reports that the contract also stated Ceglia would, "acquire an additional 1 percent interest in the business, per day, until the website was completed." At the completion of the project Ceglia claims that his stake in Facebook was 84%. Facebook claims that the suit if frivolous.

The social network is seeking to have the asset freeze struck down. Facebook's Gary Schmidt states that the asset freeze will not prevent the social networking firm from operating. Reuters reports that Zuckerberg was supposedly working on other projects in 2003 at the time Ceglia contends he had the signed contract for work resulting in Facebook. The domain name TheFacebook.com was registered in 2004.

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Could have a valid argument.
By dark matter on 7/13/2010 12:57:27 PM , Rating: 5
A lot will depend on if any of his code is still Facebook, and if the fundamentals of the design/mockup stage mimic facebook and if Zuckerberg really did sign it all off.

If Zuckerbergs signature is for real, and some of the original code still exists, then this guy could be on a winner.

Will be nice to watch and find out.




RE: Could have a valid argument.
By Spivonious on 7/13/2010 1:13:43 PM , Rating: 5
Assuming this contract is real, it doesn't matter if any of his code is in the current Facebook. He's owed $1000 plus an 84% stake.


RE: Could have a valid argument.
By dark matter on 7/13/2010 1:16:35 PM , Rating: 3
True enough. Although one would have to see what this guys version of TheFaceBook is like. If it differs wildly then Zuckerberg will have a case.


RE: Could have a valid argument.
By AnnihilatorX on 7/13/2010 1:25:51 PM , Rating: 3
I don't understand. Why would I pay someone 1% per day until he done his job? So if he intentionally delay his work until 60 days he owns 110% of the company? This doesn't make sense.


RE: Could have a valid argument.
By quiksilvr on 7/13/2010 1:40:41 PM , Rating: 2
Its business days (Mon-Fri) and if its on paper and Mark signed it, he should have checked what he signed first.

And obviously after 50 business days (10 weeks, 2 and a half months) it would be 100% and not tip over.


RE: Could have a valid argument.
By rs1 on 7/13/2010 2:08:11 PM , Rating: 1
quote:
I don't understand. Why would I pay someone 1% per day until he done his job? So if he intentionally delay his work until 60 days he owns 110% of the company?


I think it's been confusingly stated in the article. The way I understand it is:

1. Ceglia contracts with Zuckerberg to develop the initial version of Facebook (Zuckerberg is the one doing the development).

2. The initial contract terms stipulate that Zuckerberg will get a flat $1000 fee, plus a 50% stake in the website.

3. For each day that Zuckerberg spends implementing the website, 1% reverts back to Ceglia.

So essentially, it's an incentive for the developer to finish sooner. The faster he finishes, the closer to a 50% stake he ends up with. And if he takes too long, then all he gets is the $1000 fee. Seems like a good motivating tactic, to me.

Of course, it makes no sense whatsoever if Ceglia was the developer being contracted.


RE: Could have a valid argument.
By AnnihilatorX on 7/13/2010 2:39:07 PM , Rating: 2
I don't think so, the article mentions that Ceglia was to get 1000 fee so I think he's the developer

quote:
The contract terms show that Ceglia was to get a $1,000 fee and a 50% stake in the final product.


Article from Reuters says the same thing:

quote:
The terms of the contract entitled Ceglia to a $1,000 fee and a 50 percent stake in the product, which eventually was launched as thefacebook.com, according to the lawsuit. The contract also stipulated that Ceglia "would acquire an additional 1 percent interest in the business, per day, until the website was completed,"


So I am still confused


RE: Could have a valid argument.
By SandmanWN on 7/13/2010 3:03:27 PM , Rating: 4
Think of it as an abandonment clause. You pay a programmer to design your site, but if you don't implement it in 50 business days (in this case) the programmer retains the right to the website design and can distribute the site elsewhere as his own.


RE: Could have a valid argument.
By AnnihilatorX on 7/13/2010 3:13:50 PM , Rating: 2
What you said make sense. So the website programming was done before the contract was signed?


RE: Could have a valid argument.
By SandmanWN on 7/13/2010 3:28:36 PM , Rating: 3
No, it should have been signed before any work began. It has two conditions. Software completion is the first condition which falls on the developers shoulders. The second is the time frame in which the site must become active before the design is forfeited to the architect, which falls on the other party.

Might be helpful to think of it like this:
The $1000 is for the programmers time to develop.
The 50% comes from intellectual ownership of the coding technique.
The 1% term is for abandonment of the intellectual property and incentive to move forward with the business contract.

The 1% might get struck down in court, that's not totally uncommon. But I can certainly see the first two holding up in court as long as any part of the designed code is the same.

I think its imperative that the code must be the same. If you go to Company A and Company B and ask them to develop the same thing and select Company B's design then Company A is just out of luck. They will take control over their design and can sell it to someone else if they have a similar clause as this contract in the article.


RE: Could have a valid argument.
By surt on 7/13/2010 4:00:10 PM , Rating: 2
Imagine you hire me to work for your startup. Part of the motivation (for me) is an ownership stake. That ownership stake is worthless if you choose to throw away my work. So my contract specifies that all of the work reverts to me over time, thus motivating YOU to follow through. We both benefit from working hard to succeed.


RE: Could have a valid argument.
By ChristopherO on 7/13/2010 2:46:21 PM , Rating: 2
Well -- it might make sense...

If you're the 50% owner of something, you certainly want it to launch quickly so you make revenue.

I'm certain the "1% per day" is after Ceglia has fulfilled *his* end of the bargain. Meaning, if Zuckerberg sits on his duff and doesn't start promoting it, then Ceglia ends up inheriting the whole thing to promote as his own business.

In a perfect world, Zuckerberg *and* Ceglia should have been working at the same time, so the PR/advertising was done when Ceglia was done, and there were no launch delays.

Drat... I wanted to use The Wayback Machine to see what www.thefacebook.com looked like, but it has been purged from the archive due to a robots.txt no-cache request.


RE: Could have a valid argument.
By AnnihilatorX on 7/13/2010 3:10:47 PM , Rating: 2
The problem is, both articles here in DT and reuters implies that Paul Ceglia is the contracted developer, that he receives $1000 fee, 50% of company:

From Reuters:

quote:
"Paul Ceglia said he signed a contract with Facebook co-founder Mark Zuckerberg in 2003 to develop and design a website."


quote:
"The terms of the contract entitled Ceglia to a $1,000 fee and a 50 percent stake in the product"


HOWEVER , it then say

quote:
The contract also stipulated that Ceglia "would acquire an additional 1 percent interest in the business, per day, until the website was completed


which means, IF the contract was worded correctly, is completely one-sided bogus contract, since no matter Ceglia worked or not on the website, he benefits. In fact, the slower he worked on the development, he takes more of the company away. How does this make sense.

If it's the other way round, it would make sense if Mark Zuckerberg was the developer in this sense, except the fact that then why is Ceglia entitled to $1000 fee and 50% company?


RE: Could have a valid argument.
By SandmanWN on 7/13/2010 3:13:55 PM , Rating: 3
Incorrect. This type of contract is legal in many other industries.

You contract someone to build you something. In the contract you have 90 days to collect the item. If you don't collect it within that time frame the builder assumes possession and can sell it to another party or scrap it or do whatever they want with it.

Its also like parking your car on a city street. You enter into a contract with the city to abide by its laws. If you don't feed the coin machine then the city tows your car. If you don't pick it up within 30 days your car is forfeit.

I don't believe I have ever seen a contract like this with software, but if this case works I will certainly be adding a clause like this to future contracts. It's a very standard contract term that is finding new life in a virtual world.


RE: Could have a valid argument.
By TheDoc9 on 7/13/10, Rating: 0
RE: Could have a valid argument.
By SandmanWN on 7/13/2010 3:41:43 PM , Rating: 4
I would hope that is was abundantly clear that the 1% doesn't start until the coding is completed. But I guess some people will never get it.


RE: Could have a valid argument.
By casket on 7/13/2010 4:38:40 PM , Rating: 2
"which means, IF the contract was worded correctly, is completely one-sided bogus contract"
-- The average web programmer makes well over $1,000 per week. He was an independant contractor, not an employee. The concept here, is... that thefacebook.com would take 6-8 weeks to develop. Zuckerman didn't have $8,000 to pay him with. So he said, I'll give you $1,000 and half the business (for your forfeiture of $7,000 work that we won't pay you).

What if it takes 15 weeks to develop, instead 8? Then this programmer just did $15,000 job, and only got paid $1,000.

That's the concept on the growing 1%. He could have quit at 8 weeks. Done. No facebook. You're out $1,000 for a non-functioning website (and he still owns 50%). Since they had no money to pay them with... and it was mostly a concept idea... they paid him with stake... and then later decided, maybe that stake idea was a bad idea.

What do you do, if you've got a business idea that costs $15,000 to develop, and you only have $1,000 in your pocket? You give away stake.

A contract is a contract. The contract was very one-sided against him in the beginning. This guy got 1 week of pay, and he had 14 unpaid weeks of work invested in the initial design, that he wasn't compensated for. It took him twice as long to program the website as originally thought, before the work began... and he wasn't compensated for his work. I think the company is his now.


By AnnihilatorX on 7/14/2010 3:29:48 AM , Rating: 2
Thanks for your explanation.
I don't think it was all that clear in the original quotation of the reports.

quote:
The contract also stipulated that Ceglia "would acquire an additional 1 percent interest in the business, per day, until the website was completed


"website was completed" If taken literally, would imply he started coding when the counter starts that until that is completed, the counter stops.

This is why I think the original article should make it clearer that it's not completion, but implementation by Zuckerberg, not Ceglina.


RE: Could have a valid argument.
By Galcobar on 7/14/2010 6:39:09 AM , Rating: 2
The DailyTech article is, I suspect, a result of misreading other reports.

The Wall Street Journal article puts it thus (note the difference in tenses used):

quote:
In his suit, Mr. Ceglia claims he signed a contract with Mr. Zuckerberg on April 28, 2003, to develop and design a website, paying a $1,000 fee but getting a 50% stake in the product. The contract stipulated that Mr. Ceglia would get an additional 1% interest in the business for every day after Jan. 1, 2004, until it was completed.


What it means is that Zuckerberg was the one providing the site, based upon his existing project at Harvard, and Ceglia was buying it. The slower Zuckerberg delivered, the less of the business he'd own when he was done, presuming he delivered the product after the due date of Jan. 1.

Welcome to why some of us are sticklers for grammar and spelling.

Problem I see is a simple one: isn't there a statute of limitations in most states?


RE: Could have a valid argument.
By SunAngel on 7/14/2010 6:59:57 AM , Rating: 2
Your absolutely right. I immediately went to Reuters, the original story, and read it. Also, I read both Ceglia petition and the petition filed by Facebook.

I really don't want to go into a rant about DT journalism, but I've learned never to trust it. Go to a quality site if there is any doubt.


RE: Could have a valid argument.
By casket on 7/14/2010 9:39:04 AM , Rating: 2
Let's assume the statute of limitations has expired, and the contract is no longer valid. Facebook still never legally acquired the rights to Ceglia's code. Copyright reverts to the programmer.

They built a business based on Pirated Software... Software that he owns. The copyright certainly hasn't expired.


RE: Could have a valid argument.
By casket on 7/14/2010 9:52:18 AM , Rating: 2
Breach of Contract is usually 4-7 years statute of limitations. The contract was April 2003, which would be 7.3 years. His work wasn't completed, though, until 2004. That's 6.5 years. It might still be a valid contract.


RE: Could have a valid argument.
By casket on 7/14/2010 10:36:00 AM , Rating: 2
Upon further review, facebook was incorporated in the summer of 2004. That would be when the breach of contract occurred. That's 6 years, from when the breach occurred, give or take a couple of days. It was incorporated in California. California has a 4 year statute. New York has a 6-year statute. It seems to be in a New York court. I would assume that the statute has not expired.

New York: 213. Actions to be commenced within six years: where not otherwise provided for; on contract; on sealed instrument; on bond or note, and mortgage upon real property; by state based on misappropriation of public property; based on mistake; by corporation against director, officer or stockholder; based on fraud.


By Mojo the Monkey on 8/4/2010 7:35:40 PM , Rating: 2
2 things here. This guy obviously knew he had this contract and likely filed it at the last minute in NY in order to stay WITHIN the statute of limitations.

This leads to the second point. This could be a serious laches argument in Facebook's defense. But thats always a longshot.


RE: Could have a valid argument.
By menace on 7/15/2010 6:46:14 PM , Rating: 2
What code? There's no mention of code to develop or any obligation whatsoever. Just a deal that is basically "I'll give you a $1000 for a 50% stake" plus that bizarre 1%/day stipulation. From WSG "the contract itself was unusual, because it doesn't stipulate what else Mr. Zuckerberg would have gotten from Mr. Ceglia aside from $1,000" What fool would write or sign such a contract? This is plain fraud.


RE: Could have a valid argument.
By adiposity on 7/13/2010 1:36:44 PM , Rating: 3
I don't see why the similarity to facebook matters. If facebook is derived from the site the guy "owns," even if it's totally different today, the "facebook" company could still be his. Doubtful, but possible.


RE: Could have a valid argument.
By Solandri on 7/13/2010 7:46:38 PM , Rating: 2
Apparently there was a transfer of assets from thefacebook.com to facebook.com at some point in this dispute. If Zuckerberg decided the original way wasn't working and scrapped thefacebook.com, to start anew with facebook.com, then I can see this contract being irrelevant. But if he took some of the developed code, transferred it to faceobok.com, and ran with it, then the company change would seem to be a shell game to weasel out of any liabilities with thefacebook.com. And this contract could be valid.

Either way, this Ceglia guy doesn't seem to be any better than Zuckerberg. They both seem to be snakes who will lie, steal, and cheat for money and power.


RE: Could have a valid argument.
By Jaybus on 7/14/2010 4:58:23 PM , Rating: 2
No, it will depend on it being in the original facebook.com, not the current edition. It's not a copyright infringement case. It's a breech of contract case. If his code ever saw commercial use by either Facebook or Zuckerberg, then he has a case against Zuckerberg, if not Facebook. I doubt it is a forged signature.


I say give it to him.
By Motoman on 7/13/2010 1:13:18 PM , Rating: 5
If he wants the famously unprofitable, insecure website, let him have it. While he's going bankrupt we'll all know who to go and beat with blunt objects for inflicting Facebook upon the world.




RE: I say give it to him.
By vapore0n on 7/13/2010 1:54:27 PM , Rating: 2
Ok give it to me then.
First thing ill do is sell it. Last I read MS and Google offered 1B for it?

Its not about running it, its about caching in the cow.


RE: I say give it to him.
By ChristopherO on 7/13/2010 2:49:02 PM , Rating: 2
You're caching cows? I thought that was called a pasture or cow pen. At the very least, lots of tasty beef is involved, but not too much money.


RE: I say give it to him.
By Motoman on 7/13/2010 3:48:51 PM , Rating: 2
That must be a big cache. How many Gb of memory does it take to cache a cow, anyway?


RE: I say give it to him.
By chagrinnin on 7/13/2010 4:18:26 PM , Rating: 5
Or:

How much cache does a cash cow catch?


RE: I say give it to him.
By johnsonx on 7/14/2010 5:36:06 AM , Rating: 5
...if a cash cow could catch cache?


RE: I say give it to him.
By tmouse on 7/14/2010 7:34:06 AM , Rating: 4
I wonder if storing the genetic code of a bovine could be considered caching a Cow or just a lot of Bull.


RE: I say give it to him.
By carigis on 7/14/2010 10:21:05 AM , Rating: 2
The statute of limitation on contracts is 6 years unless tolled.

http://www.expertlaw.com/library/limitations_by_st...

That would start when the injury arises.. so basically when the website went up and he was not paid.


Oh I hope this is true!
By chmilz on 7/13/2010 12:40:08 PM , Rating: 2
Even if just for entertainment purposes. I'd love to see the battle royale that would result.




RE: Oh I hope this is true!
By gamerk2 on 7/13/2010 2:57:01 PM , Rating: 2
Well, the contract is pretty clear in my eyes. If its genuine, then oddly enough, the case has legs.

Of course, the minute that happens, it will be settled for some undisclosed sum out of court.


RE: Oh I hope this is true!
By callmeroy on 7/13/2010 3:25:24 PM , Rating: 2
You hit the nail on the head and what I was waiting to read someone to write...

In the off chance this case appears to be even remotely legit a huge bidding war will start between Mark and Paul to settle it. Mark is worth what 1.2 billion I think? yeah he can afford it.


RE: Oh I hope this is true!
By SandmanWN on 7/13/2010 3:53:28 PM , Rating: 3
Not sure which I would chose. Take a settlement for some portion of what the company has already made and walk away... or take partial ownership and start collecting a percentage of earnings for as long as you are in ownership.

The first would be nice given the amounts involved but the second has the potential of having much much much greater gains over time.


RE: Oh I hope this is true!
By Shining Arcanine on 7/13/2010 7:04:15 PM , Rating: 2
I think he should get 84% control in Facebook and 84% of whatever the CEO has made, from the CEO.


RE: Oh I hope this is true!
By casket on 7/13/2010 7:38:36 PM , Rating: 2
Let's assume for the sake of argument that the contract is invalid. If that is the case, then the copyrights to the original software revert to the programmer. If he has source code, then the burden would be on facebook to prove that he sold his rights to his software to them.

It's like a music publisher stealing your song, or a book publisher stealing Harry Potter. If I go out and create a $1.2 billion company by selling pirated copies of Microsoft Office... I'm going to get hit with a pretty big copyright violation.

Whether the contract is valid or not, this guy's going to get paid. I don't see how this company can prove that, although they paid him $1,000 (which I'm sure he has the records of)... that there was no contract... or that $1,000 was the complete value that he sold his software to them for.

When you fire the original programmer without paying him, without having a contract saying you own the software that he created, you're in for a whole heap of trouble.

If he was an employee of the company, that would be a different story entirely.


RE: Oh I hope this is true!
By inperfectdarkness on 7/14/2010 9:25:46 AM , Rating: 2
i would just love to see zuckerberg brought down several notches.

actually, i'd like to see the commie-loving, privacy hating, trevor goodchild wannabee out on the streets penniless and destitute.


RE: Oh I hope this is true!
By callmeroy on 7/14/2010 9:56:55 AM , Rating: 2
You should tell us how you REALLY feel (about Mark Zuckerberg).... :)


By inperfectdarkness on 7/14/2010 9:27:18 AM , Rating: 2
i would just love to see zuckerberg brought down several notches.

actually, i'd like to see the commie-loving, privacy hating, trevor goodchild wannabee out on the streets penniless and destitute.


AYFABTU
By kontorotsui on 7/13/2010 1:19:24 PM , Rating: 5
All your face are belong to us




The Timing Has Me Puzzled
By AMeetingWithTheBobs on 7/13/2010 7:53:07 PM , Rating: 3
Okay. So maybe Paul Ceglia has a case or maybe he doesn't. In either case, why wait until now before filing this lawsuit? He just realized Facebook was popular? He just found his contract for work he did over six years ago? Ideas anyone?




RE: The Timing Has Me Puzzled
By messyunkempt on 7/14/2010 10:42:33 AM , Rating: 2
He probably just saw it as an investment. The value of facebook has grown massively year after year and if his claim was a percentage then the potential value of that has also grown year after year.


whatbook?
By bupkus on 7/13/2010 2:56:31 PM , Rating: 1
quote:
Reuters reports that the contract also stated Ceglia would, "acquire an additional 1 percent interest in the business, per day, until the website was completed." At the completion of the project Ceglia claims that his stake in Facebook was 84%.
Headcasebook.com?




When Facebook doesn't seem private enough...
By MrPrivacy on 7/13/10, Rating: -1
By sviola on 7/13/2010 1:41:17 PM , Rating: 2
Bad spammer...


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