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Court upholds Winklevoss twins’ Facebook deal from 2008

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It was not quite the Hollywood ending that Cameron and Tyler Winklevoss wanted in their six-year legal brawl with Facebook Inc.

The identical twins who alleged that Mark Zuckerberg stole the idea for Facebook from his Harvard classmates — the gist of which became the hit movie “The Social Network” — cannot back out of a settlement they signed with Zuckerberg in 2008, a federal appeals court panel has ruled.

The Winklevosses had sought to overturn the negotiated settlement, worth about $65 million at the time, alleging that Facebook had swindled them out of their fair share of stock. Facebook’s value has risen sharply since the deal was reached.

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But a three-judge panel of the 9th Circuit Court of Appeals in San Francisco unanimously rejected the Winklevosses’ claims Monday and upheld the settlement.

“The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace,” Chief Judge Alex Kozinski wrote for the three-judge panel. “At some point, litigation must come to an end. That point has now been reached.”

Within hours of the legal defeat, the twins promised to press forward in the long-running dispute over the world’s most popular — and valuable — social networking site, potentially worth $50 billion.

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Their attorney, Jerome Falk, said in a statement that his clients would ask for a hearing by a full 11-judge panel.

“In my judgment, the opinion raises extremely significant questions of federal law that merit review by the entire 9th Circuit Court of Appeals,” Falk said.

Legal experts say the chances of reversing the panel’s decision or of getting the case heard by the U.S. Supreme Court are remote.

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“If it is the case that the idea for Facebook was truly stolen from them, then they had a claim to pursue. But they chose to settle that claim,” UC Berkeley law professor Robert Bartlett said. “As an armchair psychologist, it seems to me they are motivated by the disappointment and anger that led to their first claim. That anger, I think, had to come to an end when they decided to settle with Facebook.”

The Winklevosses and Divya Narendra had accused Zuckerberg of ripping off his Harvard classmates, a saga memorialized in “The Social Network.” At the end of the hit film, they walked away with $65 million in cash and stock. But their grievances did not end there.

The 29-year-old, 6-foot-5-inch twins took the risky step of trying to unwind the settlement for a shot at negotiating a larger one or settling their differences with Facebook in court. They say Facebook duped them about the value of the stock they received. Facebook accused the Winklevosses of “settler’s remorse.”

Colin Stretch, Facebook’s deputy general counsel, said in a statement Monday that he appreciated the 9th Circuit’s “careful consideration” of the case.

The Winklevosses have taken a lot of public guff for their relentless pursuit of Facebook, in large part because the settlement they reached had soared in value along with the value of the privately held company.

The 9th Circuit panel noted that Facebook is potentially worth $50 billion, 3.33 times what the Winklevosses thought it was worth at mediation. Investment bank Goldman Sachs recently led a $500-million funding round that values the Palo Alto company at $50 billion. That would make the Winklevosses’ stake worth in excess of $160 million.

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“With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity,” the court said.

Tyler and Cameron Winklevoss declined to comment, but in an interview with The Times in February, they estimated that they should have received four times the number of Facebook shares. That would have made the settlement worth more than $600 million, based on the valuation of Facebook at more than $50 billion. The brothers insisted that they were in it for the moral principle, not the money.

“If it was about the money, we would walk away right now,” Cameron Winklevoss said during the interview in San Diego, where the Olympic rowers are training for the 2012 Summer Games.

The two sides settled during a confidential mediation in 2008 for $20 million in cash and $45 million in Facebook shares. Courts are extremely reluctant to overturn settlement agreements, Brooklyn Law securities professor James Fanto said.

“When you go in well-represented into a highly contentious situation, it’s hard to make the case you were misled,” Fanto said.

The Winklevosses had access to legal counsel and information about their opponents during the mediation, the court said.

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“The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world’s fastest-growing companies,” Kozinski observed. “They engaged in discovery, which gave them access to a good deal of information about their opponents. They brought half a dozen lawyers to the mediation. Howard Winklevoss — father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation — also participated.”

During the January hearing before the appeals panel, Falk conceded that his clients “weren’t behind the barn door when the brains were handed out.”

The controversial origins of Facebook — who actually founded it and how — have been the subject of lively debate since Hollywood offered its dramatization.

Zuckerberg has called “The Social Network,” which won three Oscars, “fiction.” In it, his character tells the Winklevosses: “If you guys were the inventors of Facebook, you’d have invented Facebook.”

In a recent interview on CBS’ “60 Minutes,” Zuckerberg said he had spent less than two weeks worrying about the Winklevosses’ lawsuit. Asked whether he had any regrets, he replied: “After all this time, I feel bad that they still feel bad about it.”

Facebook faces another challenge in New York state, where wood-pellet salesman Paul Ceglia alleges that he has a 2003 contract with Zuckerberg that entitles him to a 50% stake in Facebook.

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Ceglia said in a new complaint filed Monday in federal court in Buffalo, N.Y., that he has emails from Zuckerberg to prove his claim.

“The emails bolster the case and establish what Paul Ceglia has been saying all along, that this agreement between himself and Mark Zuckerberg, as a matter of law, created a general partnership,” said San Diego attorney Robert Brownlie, who recently began representing Ceglia.

Facebook lawyer Orin Snyder called the lawsuit “fraudulent” and said Ceglia’s claims were “ridiculous.”

jessica.guynn@latimes.com

carol.williams@latimes.com

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