Jesse Willms: Important Lesson To Be Learnt From Facebook Lawsuit

Posted by Jesse Willms on January 04, 2011

One of the sad things about being in business is that sometimes you can’t trust anyone you work with. Instead, you have to make sure that everything you do is documented every step of the way. That’s because it doesn’t matter how honest and ethical you are; your employees, vendors and clients may be less, and it can cause some complicated legal issues down the line if everything isn’t spelled out.

I was reminded of this the other day when I was reading an account in The New York Times about the ongoing lawsuit between Tyler and Cameron Winklevoss and Facebook founder Mark Zuckerburg. The suit goes all the way back to when the three men were at Harvard together. The twin brothers had an idea for a dating site that would link Harvard students together to help them hook up, but didn’t have the programming experience to make it happen. So, they hired Zuckerburg to build the programming code. Unfortunately, much of this happened via conversations in the dining hall and very little of it was written down.

Several months went by and Zuckerburg kept giving them excuses for why he couldn’t finish the code for them. Then, one day they noticed he’d just launched a site called TheFacebook.com, which would eventually become Facebook.

The goal of TheFacebook.com was to link Harvard students together. The brothers were quite understandably angry, and accused Zuckerburg of stealing their idea. His argument was that his idea was completely different, because they wanted a dating site and he created a social networking site instead. The difference between the two concepts is, to say the least, hazy.

But it doesn’t stop there; at first Zuckerburg struck a deal with them, giving the brothers $20 million in cash and offering them $45 million in Facebook stock on top of that. But, the brothers and their lawyers never asked Zuckerburg or Facebook to provide them with documents stating what a share of Facebook stock was worth.

So, Facebook told them that they thought the stock was worth about $45 a share and gave them a number of shares using that valuation. Later, it turned out that internal Facebook documents valued the stock at a little over eight dollars a share – meaning that the Winklevoss brothers probably should have been given a lot more shares.

But, again, much of this negotiation was never documented, and so it is still working its way through the court system.

The obvious bottom line to this is, always put everything in writing and ask for all the documentation you can get.