Advice to Winklevoss Twins: Get Over Facebook

Which seems more likely to be an enforceable contract to you?

(A) Several college students in a dorm room discuss how writing some new code for a social networking or dating site could be a killer game-changing thing. Three tell the fourth: here’s our access code, do some programming, you’ll share in all the huge profits from the results once we hit big. The fourth goes off, does some work, then leaves it to pursue other projects.

(B) Successful entrepreneurs in a high-stakes lawsuit, represented by highly-sophisticated litigation lawyers and professional financial advisors, hammer out a precise amount of cash and stock in a start-up internet business to be paid in exchange for settling all disputes between them.

If you guessed (A), you are like the identical Winklevoss twins, the amazingly educated and immaculately accomplished 29 year-old founders of the web site Harvard Connection, later ConnectU.

If you guessed (B), you are like Mark Zucerkberg, the equally-well-educated though more reserved and somewhat awkward 26 year-old creator of the web site, Facebook.

The twins and Zuck remain locked in a 6-year old lawsuit, with oral arguments heard earlier this week in a California federal appellate court room. To hear the Winklevoss twins tell it, they hired Zuck under a contract in 2003 to write some code for their social networking business, a binding enforceable contract entitling them to all the value in Facebook but a laborer’s share.

Trouble is, as Judge Douglas Woodlock put in the early stages of their ongoing legal saga: “dorm room chit chat does not make a contract.” It’s black letter law, of centuries vintage, that a binding contract must have terms sufficiently definite to determine what obligations have been assumed and what remedy should be ordered on breach. The twins are woefully misguided to believe that as students they made a binding contract with Zuck (and so is any reader who chose (A) above).

After the twins and Zuck wrangled in costly, bicoastal litigation from 2004 through 2008, the sides negotiated and signed a formal two-page written agreement laying down their hatchets. Notably, the twins’ father, actively involved in the process, is reportedly an authority on valuation, once a professor in that field at Penn’s Wharton School, and wealthy consultant on the subject. The twins were advised not only by him but had access to other business and legal advisors. Despite that, a few weeks later, they claimed that contract unenforceable.

The grounds? That somehow Zuck and his side failed to disclose material information about what Facebook is really worth. Of course, it is black letter law, as ancient as the requirement of definiteness, that fraud in the inducement of a contract is grounds to avoid it. But it is difficult to see how information about the potential value of an inchoate internet business could contribute to establishing such a claim of fraud. What is Facebook worth, then or now? No one knows, not even Professor Winklevoss.

Any asserted information that Zuck or his side withheld can be nothing more than an opinion about what the company is worth. In fact, Facebook’s entire business model is entirely speculative. The twins made it clear that they thought they had a good deal the day they signed their settlement agreement. But, lo and behold, a few weeks later, with more spike in the punch, people think Facebook is worth even more. To quote Judge Woodlock again, the twins are experiencing the emotion akin to “buyer’s remorse.” That is not a ground to excuse a contract and has never been.   The twins are equally misguided to deny that they formed a binding settlement agreement (and so is any reader who did not pick (B) above).

For all the amazing education and accomplishments of the Winklevoss twins up until recently, their stance in this debacle suggests that the education has not amounted to much.  It certainly tarnishes their once-immaculate accomplishments.  Though unsolicited, my advice to them, as well as to the many others who get themselves into situations like this, is:  be smart and mature, get over it and move on.

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5 Responses

  1. Bob says:

    Agreeing to accept a settlement deal is the equivalent of entering into a binding contract. One does not have the option to, at some later date, say, “I don’t like that deal I agreed to – I want more money”. If this case is accepted by the court I think it should be under the condition that the twins first return the $65 million they received in the settlement prior to opening a new case against Mark Zuckerberg, and with the court having a binding, un-appealable decision on the award – if there is any award.

  2. Maryland Conservatarian says:

    A few times you referred to their “amazing education” which you also admit doesn’t seem to have amounted to much…maybe it’s time for some to get over Harvard.

  3. Lawrence Cunningham says:

    Maryland: I don’t have any problem getting over Harvard, the least impressive part of the twins’ education: a father who is a Penn professor; classical piano training at age 6; Greenwich Country Day; Brunswick School (studying Latin and Ancient Greek); and Oxford University, Said Business School and Christ Church. Not amazing?

  4. Willton says:

    A few times you referred to their “amazing education” which you also admit doesn’t seem to have amounted to much…maybe it’s time for some to get over Harvard.

    I smell sour grapes.

  5. Nancy says:

    Thank you for posting this – I couldn’t agree more. I still can’t understand what the Winklevoss twins think they will get out of this. I don’t even understand why FB settled in the first place, since the contractual claim (as far as I can tell) is weak, and the IP claim even weaker. Now, they want to get out of this settlement that IMHO they were lucky to get. As for the valuation issue – it wasn’t the idea for FB that made it “worth” billions. I can tell you that FB and ConnectU weren’t the first or only companies to come up with this type of social networking site. It takes much more than a good idea to make a successful business. Maybe FB should take them up and undo the settlement – it might be a gamble worth taking. The Winklevoss twins remind me of the fable of the greedy crow who in an effort to pick up more food, loses what he already has in his beak.