Facebook in Litigation 2.0

A long-simmering dispute over the origins of Facebook is set to erupt later this month at a federal court hearing about whether Mark Zuckerberg, the young web mogul now being feted by media honchos, stole the original code for his booming social network from three Harvard classmates.

The lawsuit, filed by brothers Cameron and Tyler Winklevoss, and Divya Narendra, accuses Zuckerberg, Facebook's 23-year-old C.E.O, of stealing the source code, design, and business plan for Facebook in 2003 when he briefly worked in the Harvard dorms as a programmer for their own fledgling social-networking site, now known as ConnectU.

The plaintiffs have demanded that Facebook be shut down and that full control of the site - and its profits - be turned over to them.

The hearing comes just as Facebook is exploding into the social networking stratosphere and Zuckerberg is the toast - in absentia - of this week's elite media ball at the annual Allen & Co. conference in Sun Valley, Idaho.

"This lawsuit goes to the core of the assets that Facebook claims to own," said Eric Goldman, Director of the High Tech Law Institute at Santa Clara University. "The ConnectU guys are clearly ticked off, and they seem willing to spend a lot of money to pursue this."

Indeed, there is vastly more money at stake now than when the dispute began in 2004. Facebook, which spurned Yahoo's $1 billion buyout offer last fall, is now thought to be worth at least double that. (The latest rumor is that Microsoft is eyeing the site for $6 billion.)

Since Facebook, based in Palo Alto, California, expanded its network beyond college students last September, it has nearly doubled in size, from 14 million visitors per month to 26 million, according to comScore. Facebook expects to earn $30 million this year on revenue of $150 million, mostly derived from advertising, according to the Wall Street Journal. Not surprisingly, web ad king Google, which handles search for MySpace, the social networking leader, is keen to work with Facebook, as Google's co-founder Larry Page suggested to reporters in Sun Valley this week.

Might there be another YouTube-like deal hatched at a Silicon Valley Denny's in the offing?

Zuckerberg, like YouTube co-founder and last year's belle at the Sun Valley ball, Chad Hurley, has insisted that Facebook is not for sale. An eventual initial public offering is said to be planned for Facebook. But potential suitors - not to mention the investing public - may have to wait for the lawsuit to be decided before they can get their hands on the company.

If the lawsuit drags on, a settlement deal with ConnectU could look increasingly attractive to Facebook, Goldman of Santa Clara University said.

For the last three years, lawyers for the two sides have waged an increasingly contentious - though largely unnoticed - court battle. On March 28, a resolution seemed at hand when a Massachusetts judge threw out the original lawsuit on a technicality. But because the court did not rule on the legal merits of the case, ConnectU promptly filed a new lawsuit, with a newly honed legal presentation and additional charges. Facebook, meanwhile, has filed a terse countersuit in California federal court, accusing ConnectU of tort violations and unfair business practices

Armed with a phalanx of lawyers from the powerhouse Bay Area firm of Orrick, Herrington & Sutcliff, Zuckerberg hopes to quash ConnectU once and for all at a hearing before Massachusetts U.S. District Court Judge Douglas P. Woodlock on July 25. In their motion to dismiss, Zuckerberg's lawyers noted archly, "Only one of [the students] had an idea significant enough to build a great company. That one person was Mark Zuckerberg."

With the case revving up, the focus is on Facebook's origins in the dorms of Harvard. In the spring of 2003, the Winklevoss brothers, two Harvard juniors, asked Zuckerberg to help program their fledgling online student directory, then known as Harvard Connection. Zuckerberg does not deny working for the brothers and has admitted having access to the source code of their website "in late 2003," according to court filings.

The Winklevoss brothers say Zurckerberg was integral to the development of ConnectU - before he ripped them off to launch Facebook. They say Zuckerberg not only stole "the basic idea" for Facebook, but also their business plan as well as the site's specific code, layout and database which were "proprietary and confidential."

After beginning to work on the brothers' site, Zuckerberg "then went MIA for a few months and suddenly came out with Facebook," according to one Harvard grad familiar with the dispute. On January 11, 2004 Zuckerberg registered thefacebook.com, three days after sending the Winklevoss brothers an email promising to deliver a "functioning website" for Harvard Connection. On February 4, 2004, Zuckerberg officially launched Facebook, a move the brothers say "usurped" their "valuable business opportunity."

The rest is history. For his part, Zuckerberg has said he was "intrigued" by ConnectU, but found that he was "subjected to demands on my time without truly being made a part of the development team."

To a mini-mogul like Zuckerberg - who rubs elbows with the likes of Murdoch and Moonves - the lawsuit may seem a long way down the mountain. After all, Zuckerberg has been living the dream of the young tech superstar - traipsing around such high-powered media conferences in Birkenstocks, etc. - and fashioning himself as the next young tech messiah. Last year Zuckerberg famously dispatched then-Yahoo boss and old-media icon Terry Semel by spurning his $1 billion offer, only to see Semel crash and burn, in part for failing to close that deal.

But as he crests on a billion dollar wave, Zuckerberg is clearly taking the ConnectU lawsuit seriously. He's brought out the big guns, led by Silicon Valley intellectual property law ace Hopkins Guy, in addition to his already high-powered lawyers from the Boston office of Proskauer Rose. Lawyers for both sides declined to comment on the case, and a spokesperson for Facebook said the company does not comment on pending litigation.

Sam Gustin