Lessons From the Facebook Case

Lessons From the Facebook Case

We have the privilege of representing a lot of small businesses. The nature of small businesses requires that they move fast. They do deals on a handshake, or on the back of a coffee stained napkin, or sometimes even based on what they think the other party said or intended to say. Most of the time, it works; but, of course, sometimes it does not. There are other times that a small business client requests that I draft a basic contract to do X.  I draft what ends up being an 11 page contract and forward it to the client. The client responds with something like, “Can't we get this down to about two pages, and to not sound so lawyerly?”

This brings us to the Facebook case. The Facebook case provides an example of why the lawyerly stuff matters. An appeals court just ruled that Mark Zuckerberg, founder of Facebook and the Winklevosses, founders of ConnectU, are bound by the terms of a settlement agreement that they signed. The primary issues of the dispute were well-documented in the Golden Globe winning film The Social Network. The Winklevosses sued Zuckerberg for stealing their idea for a social networking website. A lengthy and contentious court battle ensued resulting in thousands of hours of attorney time and millions of dollars in legal fees. The court ordered the parties to go to mediation, and in the wee hours of the night, on February 22, 2008, the parties signed a agreement resolving “all disputes between ConnectU. . . and Facebook.” Pursuant to the agreement, the Winklevosses received cash and stock worth, based on current estimates, over 160 million dollars. These are not, however, the facts I find most interesting.

The most interesting thing about this settlement agreement to me is that it was only one and one third pages long!

Let's put this in perspective, this agreement was the culmination of thousands of billable hours and millions of dollars in fees and it is estimated to be worth over 160 million dollars to the Winklevosses (the entire substance of the settlement agreement is set out here on page 3).  Incidentally, this blog is considerably longer than the entire settlement agreement!

Not surprisingly, only months later, the Winklevosses sought to have the settlement agreement deemed unenforceable. The case meandered its way through the courts and no doubt an additional million dollars in legal fees later, ended up before the Ninth Circuit Court of Appeals which just announced its decision. The Court did ultimately find that the settlement agreement was binding. However, the question remains, had the settlement agreement been more than just a bullet point list of settlement terms, could a great deal (or all) of the legal wrangling been avoided?

The moral of the story: the lawyerly stuff matters.

We at the Waterford Law Group know that business moves fast, and that unnecessary delay results in missed opportunities. We also know, though, that a deal gone bad can cause you much more harm than good in the long run if not properly documented and considered. This requires a careful balance. We want to help you strike that balance.

ObservationsKurt Beasley