April 11, 2011 (AFP) – A US appeals court ruled on Monday that Tyler and Cameron Winklevoss can’t back out of the settlement deal they made in a lawsuit charging that Mark Zuckerberg stole their idea for Facebook.
“The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace,” the 9th US Circuit Court of Appeals said.
“At some point, litigation must come to an end,” the court said. “That point has now been reached.”
Twin brothers Tyler and Cameron Winklevoss claim they enlisted Zuckerberg to finish software code for their ConnectU social-networking website while they were all students at Harvard University in 2003.
Zuckerberg, a second year student at the time, took their code and their idea and launched Facebook in February 2004 instead of holding up his end of the deal, according to the brothers. Facebook rejects that account.
Hollywood made the saga famous in the hit film “The Social Network.”
The twins inked a settlement two years ago that got them $20 million in cash and $45 million worth of stock valued at $36 per share.
The value of that yet-to-be-issued stock has skyrocketed along with Facebook’s estimated market value, which was placed at $50 billion early this year, the judges noted in their ruling.
“With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity,” the judges said.
“For whatever reason, they now want to back out,” they continued. “Like the district court, we see no basis for allowing them to do so.”
The brothers challenged the settlement, which was supposed to be confidential, on the grounds that Zuckerberg suckered them during settlement talks by not revealing Facebook internally valued the stock at $9.
The lower figure would have resulted in the Winklevoss twins getting many more shares.
Facebook welcomed the ruling.
“We appreciate the 9th Circuit’s careful consideration of this case and are pleased the court has ruled in Facebook’s favor,” Facebook general counsel Colin Stretch said in a statement.
Attorney Jerome Falk, who represents the twins, said his legal team will file a petition within 15 days for a “rehearing en banc” at which the ruling would be reconsidered by a panel of 11 appeals court judges.
“I respectfully disagree with the 9th Circuit’s conclusions,” Falk said in an emailed statement.
“In my judgment, the opinion raises extremely significant questions of federal law that merit review by the entire 9th Circuit Court of Appeals.”
Members of the three-judge panel bore holes in the argument pitched by Falk during a January hearing in San Francisco.
The Winklevoss brothers based the value of Facebook stock on news that months earlier technology giant Microsoft had bought a small piece of the social networking star in a deal that valued the stock at just shy of $36 and the company at $15 billion, Falk said at the time.
He argued that Facebook violated US securities law by not disclosing that it had valued the stock at closer to $9 for stock options issued to employees at that time.
“This case is about whether sophisticated parties surrounded by a platoon of world-class lawyers can cancel a deal that is binding,” Facebook attorney Joshua Rosenkranz countered in his time before the judges.
“No one was misled here,” he said. “The ConnectU founders struck a deal that made them very rich and is making them richer by the day. No one made them sign it.”
Rosenkranz argued that Facebook was under no obligation to volunteer the stock option information during settlement negotiations and that the information was not intentionally withheld.
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