Did Facebook founder give up his ownership stake?

A contract that Facebook Founder Mark Zuckerberg signed seven years ago may cost him his ownership stake in the company. The contract granted a New York businessman the aforementioned ownership stake back when Facebook was just starting out according to a Facebook Lawyer.

According to Bloomberg via LATimes.com, the Facebook Lawyer, Lisa Simpson said the following to a U.S. District Judge in Buffalo, N.Y. “Whether he signed this piece of paper, we're unsure at this moment.” Last month, a Wellsville, N.Y. resident (Paul Ceglia) also sued Facebook and its CEO in a court in his area.

The claim was that he hired Zuckerberg back in 2003 for two separate ventures. One of those ventures just happened to be “an already-in-progress project designed to offer the students of Harvard university access to a website [sic] similar to a live functioning yearbook with the working title of 'The Face Book.’”

A judge in Mr. Ceglia’s local area granted his request for a widespread restraining order that prevents Facebook from selling any of its assets. Facebook responded swiftly by requesting that the case be made federal. Friday, after Facebook’s request was granted, Federal Judge Richard Arcara put a hold on the restraining order.

As of Tuesday, both parties agreed to allow the restraining order to expire while further negotiations are discussed. Ceglia’s attorney, Terrence Connors, explained that Ceglia hired Mark Zuckerberg to work on a street-mapping database project. The contract that was signed upon Zuckerberg’s hire involved a side project that Zuckerberg claimed that he had in the works.

It was the side project that became what is now known as Facebook. According to Facebook’s legal filings, it has challenged the timing of the case and the facts that were stated by Ceglia. One of Facebook’s spokesmen claimed that the lawsuit is “completely frivolous”. If this case succeeds, it will likely have serious implications for Facebook.

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33 Comments

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Surely the law doesn't allow him to have to hand FB over now that he's done all the work, and got to the point where it makes millions of dollars.

All he's done is wait, so he can make a quick buck. I hope the court tells him to **** off and do some work to make some cash.

On the one hand, I believe that selling FB to a "stranger" sucks but on the other, no one knows if this move would save FB from its privacy concerns, due to new and fresher ideas..

We'll see..

Facebook, as a business, is shady at best. Their business model is not quite clear, nor how they obtained the initial funds or the current earning.

Magallanes said,
Facebook, as a business, is shady at best. Their business model is not quite clear, nor how they obtained the initial funds or the current earning.
Really? I doubt that. It's pretty obvious how they got their funding and their revenue.

Magallanes said,
Facebook, as a business, is shady at best. Their business model is not quite clear, nor how they obtained the initial funds or the current earning.

It's quite clear *where* the money comes from. There's been plenty of information about that. But you're certainly right that it's shady. In fact, the more you find out about where Facebook's money is coming from, the shadier it all looks.

First, Bing ads. Which were turning out so well for Microsoft that they're going to let the contract expire this year. (The spin is that Facebook can monetize the inventory better by themselves -- but come on, don't tell me that Microsoft's lawyers didn't put a renewal option in the contract.)

Second, social gaming (includes virtual goods, as well as the best-performing CPC ads). And how are the social gaming companies getting their money? Through lead-gen scams!

Third, brand advertising from national brands. Unlike transactional advertising, brand advertising is fuzzy and doesn't have to produce actual results. All you have to do is poll a bunch of teenagers and ask them where they heard about your brand. Well, if you've ever run a survey, you know that you can get 5% of people to check any option as long as you put it first on the list. Then you take the survey results to your boss and say, "Hey, look, Facebook is improving brand awareness!"

There's something not quite right about it all. Every press conference from Zuckerberg or another C-level executive is filled with weasel words ("positive EBITDA", "positive cash flow" -- notice they do not say the words "GAAP" and "profit" in the same sentence). Every positive report I've read about Facebook advertising come from self-proclaimed social media experts, journalists, or marketers. In other words, hype. Every negative report I've read about Facebook advertising comes from people attempting to run transactional advertising on Facebook (you know, selling real products and making real profits -- what a concept!), and failing miserably at it.

There is no doubt that Zuckerberg will see plenty of these and other suits. He had some big backers, to get where he is, and become a multi Billionaire (at least on paper). He didn't get to where he is today without a lot of help - now it's payback time.

The next round will be people looking at their patents. Facebook is hardly a unique concept. The timing is probably right, because Facebook's popularity could evaporate quickly, once people REALLY UNDERSTAND that they are voluntarily entering PERSONAL INFORMATION into a MASSIVE database. Who'd have thought people could be such stupid *****!

thefonz said,
What took him so long to file legal action?
Sounds suspicious to me.
Has he only just heard of fb recently??!

I guess it's a similar thing to patents. Apple, or nokia don't sue for patent infringement as soon as they discover it. They wait until the offender has sold many many units and reap the awards. This is my understanding, but I could be wrong.

I presume he has been sitting on his nest egg, waiting on it coming to fruition.

The get serious though, what kind of business person makes a deal with a third-party Web Designer that offers them such a large stake in your company?? This is what "money" was invented for! I'd understand if he was a business partner of Mark's, but something tells me otherwise....

rtire said,
The get serious though, what kind of business person makes a deal with a third-party Web Designer that offers them such a large stake in your company??

I've been a software developer for over 15 years and there have been many times that I have been offered stock or a percentage of the company (startups, of course) for my work. I always turn it down and not once has any of those companies gone anywhere. The odds are just too great against a company going great. Besides, I have rent to pay.

linuxboynz said,
Given that Zuckerberg thinks of his users as "dumb f***s" this seems like a good dose of karma.

Not really; that was an accurate analysis by him, as evidenced by all those people who complained about the updates to Facebook's design (yes, people are allowed to have an opinion, but a lot of what was said by user's showed their lack of intelligence). Of course, that is only if Zuckerberg was speaking in the general sense about the majority of users or just some of the users because I'm not a dumb ****

NGRaziel said,
Err, Lisa Simpson, lawyer ? Fits her well

That was my first thought in general when reading the news. I thought, "Wow, they are hiring the Simpsons now!" lol

Edit: btw, my father just said, "Marge for president!" lol

Klethron said,
I'm willing to bet this gets settled out of court. But if it doesn't it will be interesting to see what happens.

There is always that possibility. That is for sure. I would hope so because it would be quite a big upset for Zuckerberg if not.

Klethron said,
I'm willing to bet this gets settled out of court. But if it doesn't it will be interesting to see what happens.

Really?
I think Ceglia will be asking for way too much money!
Lets be honest, if you found out you actually owned Facebook, how much money would you ask for?!

Klethron said,
I'm willing to bet this gets settled out of court. But if it doesn't it will be interesting to see what happens.
They plan to "fight it vigorously". I assume they meant that in the strictest legal sense.

barteh said,

Really?
I think Ceglia will be asking for way too much money!
Lets be honest, if you found out you actually owned Facebook, how much money would you ask for?!

You won't need to ask. It would be all your money anyway. Right? Because you are the owner.

Anaron said,
They plan to "fight it vigorously". I assume they meant that in the strictest legal sense.

You haven't heard? They're doing a Pay-Per-View event. It's going to be an "Everything Goes Street Fight. Winner takes all.