So many of us use Facebook, it’s hard to realize that not but a few short years ago, the idea of social networking was not on the radar.
In the grand lottery that capitalism quite often is, it’s also no surprise that the people who come up with the innovations quite often have relied on others to get them there.
So it’s probably no surprise that Facebook founder and billionaire Mark Zuckerberg has attracted his share of litigation.
The New York Times reports on a federal case, now up at the U.S. Court of Appeals for the Ninth Circuit (California and the west, more or less), where a set of twins who were Olympic swimmers are in litigation with Facebook and Mark Zuckerberg over the value of a settlement. The twins, Tyler and Cameron Winklevoss, have maintained that it was they, and not Zuckerberg, who had the original idea for Facebook.
They have been going at it in court for six years. Sometime in the past six years, there was a settlement. The dispute now is whether the settlement was an honest one, whether the share portion of it was accurately calculated.
The circuit court ruled against the Winklevoss twins on Monday, because they say the settlement was a good settlement. [“Good” meaning lawful.]
The issue seems to be about what the value of the Facebook shares, which don’t trade publicly, were worth at the time the deal was struck. The twins say that the price quoted for them was higher than it really was at the time. And so they were quoted an overpriced number. (Say it’s $10,000,000 at $50/share, but in reality the shares at that time were only worth $10. So they didn’t get $10,000,000, they only got the “value” of $2,000,000.)
What seems to have persuaded the court is that nowadays the shares, on private trades, go for something like $150 a share. So from the court’s perspective, the twins were really settling for shares, not for cash. (There was a cash portion, to the settlement, too, by the way. Twenty million dollars.) The settlement was therefore for value, not for sham consideration.
The point being made was that, simply because a transaction doesn’t turn out as ideally as it could have, does not mean that the party agreeing to the settlement has been wronged.
Zuckerberg did not breach the settlement, so the circuit court did not see where the twins had been harmed–even though they might have gotten more shares at the time the settlement was struck, if they knew other information about the trading price of the shares.
It’s hard to feel sorry for multimillionaires, or any sense that they were cheated, even by a guy who has $13 billion off an idea that was built on public, Department of Defense money. Indeed, the value of Facebook is only on what someone will be willing to pay for the shares—and there’s no guarantee that any public offering won’t blow up the way so many internet startups did in the years 2000 and 2001. There is a lot of risk to the business.
Is Facebook worth $50 for every man, woman and child in America? I don’t know how many overseas users there are, but is it really worth that much? I have never bought anything through Facebook, nor paid it any money. When I used to use AOL, at least they were getting $20 or so a month. And they didn’t turn out on the top in the end, even though they’re still around.
[P.S. The New York Times has it as “the Ninth Circuit District Court of Appeals”, but I’m sure they don’t mean “District Court”, since that is the lower court in the federal system.]