Facebook Fights for Settlement

Zusha Elinson

The Recorder

It was going to be a show -- arguments between Web 2.0 darling Facebook and one-time rival ConnectU over a settlement gone bad. Instead, U.S. District Judge James Ware booted members of the press from his San Jose, Calif., federal courtroom Monday, saying he wanted to have a "frank" discussion about the settlement, which Facebook is trying to enforce and ConnectU wants to void.

But in this long-running dispute, in which 24-year-old Facebook CEO Mark Zuckerberg is accused of stealing ideas and success from ConnectU, news outlets aren't the only ones beside themselves with indignation -- the lawyers and parties are, too.

On the Facebook side, Orrick, Herrington & Sutcliffe lawyers are trying to enforce a settlement reached after two days of mediation in February. On the other side, ConnectU is arguing that the settlement is a fraud -- and, according to a court filing, they've fired one of their outside firms, Quinn Emanuel Urquhart Oliver & Hedges. Quinn has filed a lien against any recovery ConnectU gets from Facebook to pay for the work it did in related cases in Massachusetts, according to court filings.

On Monday, ConnectU showed up with lawyers from Finnegan, Henderson, Farabow, Garrett & Dunner -- which has been on the case all along -- and its new hired guns from well known East Coast trial firm Boies, Schiller & Flexner. Facebook has been represented by Menlo Park, Calif., IP lawyer Neel Chatterjee and his colleagues at Orrick throughout.

While the press made an official protest -- reporters from CNET, the San Jose Mercury News and Bloomberg asked to continue the hearing so their counsel could be present -- Ware wouldn't have it. He maintained that it would be "beneficial to the court" to hear the arguments about the confidential settlement in a closed courtroom, although he said he would set up time for the media to make objections.

The parties argued for two hours, presumably over Facebook's sealed motion to enforce the settlement before the closed court. Lawyers who took part in the hearing wouldn't reveal what was discussed, but said Ware had not made any rulings. They also said the judge wanted to resolve things quickly.

The dispute got started at Harvard, where ConnectU's founders, Cameron and Tyler Winklevoss, hired fellow student Zuckerberg to work on a dating Web site for Harvard students. Now they accuse him of delaying the project while coming up with Facebook, a private company currently valued at $15 billion. They accuse him of stealing trade secrets and of copyright infringement.

ConnectU sued in Massachusetts and Facebook later countersued in California, claiming that ConnectU hacked into Facebook to get e-mail addresses from its directory.

ConnectU's lawyers had argued in court papers leading up to Monday's hearing that the settlement reached after mediation on Feb. 22 and 23 was "procured through fraud." The lawyers say Facebook didn't come clean about the company's valuation, making the stock portion of the settlement worth just a quarter of what it should be. They also say the "handwritten 1 1/2 page term sheet and settlement agreement" is ambiguous and omits material terms. Finally, the lawyers say that new evidence turned up from Zuckerberg's instant message logs could invalidate the settlement.

Facebook's lawyer, Orrick's Chatterjee, declined to comment on the case. But his client believes the settlement reached in February is enforceable, according to court papers.

It was unclear which lawyers handled the settlement for ConnectU -- both Quinn Emanuel and Finnegan Henderson were working on it at the time. But notice of Quinn being dropped from the litigation was given on April 23, the same day Facebook moved to enforce the settlement, and the same day that Quinn filed a lien -- a very public move for such a high-profile case.

Quinn attorneys previously involved in the litigation did not return phone calls seeking comment, and ConnectU did not return an e-mail requesting comment on the Quinn termination. Boies and Finnegan lawyers declined to comment on the issue as well. The Boies lawyers were in court specifically to deal with the motion to enforce the settlement. When asked whether his firm was Quinn's replacement, Boies partner David Barrett would only say, "We're here, and they're not."