In the latest twist to the latest lawsuit from someone claiming partial ownership of Facebook, Paul Ceglia has refiled his case from last year — and produced a new string of emails with company founder Mark Zuckerberg that Ceglia claims indicate that he owns up to 50% of Facebook. Ceglia has also convinced one of the largest law firms in the world, DLA Piper, to represent him.
The emails themselves make the case look far more interesting. Until the news broke last night, the most notable recent movement was a judge siding with Facebook a few weeks ago, forcing the case to be heard in a district court instead of a local New York one as Ceglia had wanted.
Given that in the US legal system, defendants are presumed innocent until proven guilty, the onus is on Ceglia to convince the courts of his case. And there are still some big questions remaining for him to answer, which we’ll get into below.
For those who haven’t already been following the matter, see our coverage of Ceglia’s case last year, Business Insider’s breathless examination of the latest emails today, additional reporting on the matter from The New York Times, and more discussion on Techmeme — as well as Above The Law’s more skeptical take. ZDNet has a copy of the latest filing, for those who are interested.
DLA Piper is a large and relatively prestigious law firm and many observers today take its involvement, and its strong statement supporting Ceglia, to indicate that the case has substance. But we are less credulous about DLA Piper’s motives here — law firms represent clients in order to make money, not necessarily to champion the truth. Clearly, the firm is taking on some risk: if it turns out that Ceglia’s claims are completely false, the firm will look bad at picking and vetting clients.
However, given that Facebook has acknowledged that at least some of the documents are real, there is all sorts of room to get an outcome that doesn’t result in complete failure.
The most immediately achievable benefit is marketing. DLA Piper is now appearing in every story about the lawsuit around the world, and in most coverage it is being framed as the expert counsel who is standing up for a jilted entrepreneur against a company that many people have mixed feelings about. Anyone who doesn’t like Facebook, or who wants to go up against a company like Facebook, might now be more likely to turn to DLA Piper than before.
The more obvious benefit is money. Facebook has already shown itself willing to settle with plaintiffs claiming founder ownership, in the case of the Winklevoss twins. While the twins were ultimately lost a variety of appeals (as of yesterday), they were able to land $65 million. That amount was a settlement that Facebook agreed to years ago, when it had much less money.
Facebook has shown it is willing to pay to make problems go away. Even a small win on DLA’s part could mean either cash or stock in Facebook, depending on what the firm can get for Ceglia, and what its representation terms are with him. Meanwhile, demand for legal services has been dropping around the world due to the recession, and it’s possible the firm is more generally willing to take risky cases in order to make money than just a few years ago.
And in case you want more evidence that law firms are interested in representing smaller, possibly suspect clients against bigger ones, just look back to how the world found out about the $65 million agreement between Facebook and the Winklevoss twins: The Winklevoss’ law firm (at the time) advertised the amount of the win as part of its promotional literature to new clients.
If DLA Piper wins any significant amount of money, expect it to promote it as loudly as the terms of the case allow.
There are important unanswered questions around the emails themselves. DLA Piper is saying that Ceglia has a case, but so far we haven’t seen evidence proving that the newly-introduced emails are real, rather than after-the-fact fakes. We just see plain text, and the firm’s word that the emails are real. Beyond technical confirmations — such as whether there are records of the emails on Zuckerberg’s side — bigger questions also remain for the plaintiff.
1. Why did Ceglia wait so long to file the case, in the first place? Facebook has been growing quite publicly since it launched. It’s been making headlines since 2006 amid possibilities of high-priced acquisitions. Considering that he would have had the nasty email exchanges still fresh on his mind, Ceglia would have had every reason to take Zuckerberg to court at any point before 2010.
2. Why did Ceglia not produce the latest round of emails last year, in his original case? Given the scope of what Ceglia hopes to get, that he didn’t use these key pieces of evidence before is even more surprising than the fact that he waited so long to file. There are also some unexplained changes between the original case and the refiling. He started off asking for 84% of Facebook, based on a contract that he said at the time gave him an additional 1% of the company every day that the project was delayed past January 1, 2004. Now he’s only asking for 50%. The latest court documents from him say that he had waived the 1% increase in February of 2004. Why did he try to get 84% last year, when his own evidence supposedly contradicts this claim? The difference, after all, is 34% of Facebook, which amounts to billions of dollars.
3. Where is the evidence that Zuckerberg accepted the payment for “The Face Book”? Ceglia has to our knowledge only provided proof of payment for $1000, which may have been for work on a “Streetfax.com” site that the two had agreed Zuckerberg would work on. Only Ceglia’s latest batch of emails show Zuckerberg making explicit mention of taking the money Ceglia provided for “The Face Book” — meanwhile, the new suit doesn’t appear to include more proof of any payments sent and received.
4. Why would Zuckerberg agree to such an obviously bad contract? He had previously built a music recommendation service in high school that he could have sold for more than a million dollars — instead he didn’t, and went off to a very expensive college with numerous employment opportunities. For someone with entrepreneurial experience, who had had far more money offered to him, why would Zuckerberg give up so much of any project he was working on for so little money? Ceglia’s emails show Zuckerberg looking for very small amounts throughout the course of 2003, yet other accounts of Facebook’s early days show Zuckerberg having relatively good access to funding via cofounder Eduardo Saverin.
On its face, the new emails make Ceglia’s case look far more credible than it had, as does DLA Piper’s involvement. Yet Ceglia is still very far from showing the world why he should be awarded up to 50% of Facebook, and his firm is a far from objective partner.
While the ins and outs of the case are interesting, especially for investors, the users, developers, and marketers currently using Facebook should not make any changes to plan around the idea that Paul Ceglia could one day be co-owner of the company.
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