Facebook – ConnectU Legal Battle Nears End

A judge has ordered ConnectU to stick to its original settlement and transfer its stock to Facebook, in spite of an appeal.

In a particularly complex legal tale, ConnectU has been ordered by a court to honor an agreement and hand over its stock to Facebook, even though ConnectU is suing Facebook over misrepresentation of its value in the settlement on another suit. Got that? Good.

Back in 2004 the founders of the ConnectU social networking site, brothers Cameron and Tyler Winkelvoss and Divya Narenda, sued their fellow Harvard student Mark Zuckerbug, claiming he stole their social networking site idea while doing work for them in 2003.

That suit was settled earlier this year, and as part of the settlement Facebook agreed to give ConnectU’s owners an unnamed amount of cash and Facebook stock. In return Facebook would received all the ConnectU stock owned by its principals.

The appeal is over the valuation of Facebook. When Microsoft took a $240 million stake in Facebook last October, that put its value, on paper at least, at $15 billion. But Facebook has argued that valuation was specific to the Microsoft deal and that its real value is $3-4 billion.

ConnectU had wanted to hold off handing over its stock until that issue, which affects how much money its owners will receive, has been settled. But Judge James Ware of the US district court in San Jose has ordered the ConnectU people to hand over stock before the appeal can be heard. In his judgment he wrote:

"The longer the court delays in enforcing the settlement between the parties, the more like the value of the consideration subject of the settlement will change. Any further delay in enforcing the settlement will create a serious risk of prejudice to Facebook, as well as to ConnectU."

Facebook offered no comment on the decision. The Winkelvoss brothers are in Beijing, representing the US in Olympic rowing.