Winklevoss twins fraud case: Is 'Social Network' saga finally over?

Winklevoss twins lawyers argued that the twins' settlement with Facebook founder Mark Zuckerberg – chronicled in 'The Social Network' – was fraudulent. An appeals court disagreed, but the Winklevoss twins vow to fight on.

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Adam Hunger/Reuters/File
Winklevoss twins, Cameron (l.) and Tyler, pose at the Head of the Charles Regatta in Boston on Oct. 23. The Ninth Circuit Court of Appeals ruled Monday that the brothers cannot back out of a settlement with giant social networking firm Facebook over claims that Chief Executive Mark Zuckerberg stole their idea.

The real-life dispute at the center of last year's Oscar award-winning film, "The Social Network," moved a step closer to legal resolution Monday.

A three-judge panel of the Ninth Circuit Court of Appeals ruled that a 2008 settlement deal between Facebook founder Mark Zuckerberg and Olympic rowing twins Cameron and Tyler Winklevoss is valid.

The Winklevoss twins had accused Mr. Zuckerberg of stealing their idea for their social networking site, ConnectU, and turning it into Facebook. The settlement reportedly gave the Winklevoss twins and a colleague shares in Facebook. Lawyers for ConnectU have since argued that the Winklevosses were fraudulently misled about the value of Facebook and that crucial details were omitted from the settlement.

The Ninth Circuit disagreed Monday. The twins have indicated they will file for “en banc” review – an attempt to have the full court rule on the case. But most legal analysts expect the ruling to stand, particularly since the three-judge panel was unanimous.

“Rarely does any court of appeals grant a rehearing by a greater number of judges if there has been no dissent in the decision below,” says Doug Mirell, a partner at the Los Angeles offices of Loeb & Loeb, a national firm.

“This decision really comes as very little of a surprise, as the court indicated that the Winklevosses were sophisticated parties who were represented by able counsel as well as by their own father, a former accounting professor at the Wharton School and an expert in valuation,” Mr. Mirell adds.

Facebook, now estimated to be worth more than $50 billion, is the world's largest social-networking site with 500 million members. Facebook's legal team argued at the January hearing in San Francisco that it was the responsibility of the ConnectU owners to determine what Facebook was worth.

San Diego attorney Dwight Ritter says the court agreed.

“It was the disgruntled graduates’, and their lawyers’, responsibility to determine the stock value before they settled,” says Mr. Ritter. “In essence, the Ninth Circuit is holding that a voluntary and willing settlement, among adverse parties in litigation, will be upheld unless there are extraordinary circumstances showing that the settlement was fraudulently obtained. Differences of opinion at the time of the settlement are simply not enough to void the settlement agreement.”

Mirell believes the Winklevosses will follow through as they have stated they will: “They’ve said they are going to take this higher and I believe, them. They certainly have enough money to do so. But I would not place a bet on them winning.”

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