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Doubts Over Facebook Ownership

July 21, 2010

A lawyer for Facebook Inc. said she was not sure if Mark Zuckerberg, the founder of the social networking site, signed a contract to allow a New York man to control 84 percent of Facebook, according to a recent Bloomberg report.

Paul Ceglia sued Facebook and Zuckerberg in state court June 30, saying that a contract the founder signed on April 2003 entitles him to ownership of most of the company.  Ceglia’s lawyer produced a copy of the document for U.S. District Judge Richard Arcara at a federal court hearing on Tuesday in Buffalo, New York.

“Whether he signed this piece of paper, we’re unsure at this moment,” Facebook lawyer Lisa Simpson told Arcara.

Simpson said that Facebook has “serious questions” about its authenticity.

The case is the most recent to challenge Facebook’s origins, which is currently valued at $24.6 billion, according to SharesPost.com.  Facebook’s paternity was questioned in a suit by a group of Zuckerberg’s former Harvard University schoolmates, who claimed he used code to develop their ConnectU project to start Facebook.  They settled the suit in 2008.

Tuesday’s hearing was for Arcara to consider a request by Facebook to dissolve a temporary injunction, issued by a state court judge June 30, preventing the company from transferring assets.  The parties resolved the issue by agreeing to allow the injunction to expire July 23.  Arcara extended an order keeping the injunction until then, which means it will not have any effect.

Both parties also provided new details of their clients’ stories in response to questions from the judge.

“Mr. Zuckerberg did have a contract with Mr. Ceglia,” Simpson said. Zuckerberg worked for Ceglia as a computer coder, she said.

Facebook claims that Ceglia remained silent for over six years and his claim is probably too old to pursue.  The company said in court papers that Ceglia also claims his alleged contract was signed about nine months before Facebook was founded.

Terrence Connors, Ceglia’s attorney, produced a copy of the two-page “work for hire” contract that his client said entitles him to control of Facebook.

Connors told the judge that Ceglia was a Web designer trying to develop a project known as “StreetFax” in the spring of 2003.  His plan was to put millions of photos of streets into a database and charge insurers money to access it.

“What he needed was a coder,” Connors told the judge.

Ceglia solicited bids to do the work, saying that Zuckerberg was the lowest bidder at $1,000.

“But I’ve got a project of my own,” Connors said Zuckerberg told his client. “I’m developing an online yearbook for Harvard kids now, but I’m thinking of expanding it.”

Connors said that the contract was intended to cover the coding work on StreetFax and Ceglia’s investment in Zuckerberg’s “fledgling project.”  He said, “Who knew then that it would turn into what it is today?”

Connors declined to explain why it took Ceglia so long to file his legal claim.  He also declined to say whether Ceglia had made any demand for money or for ownership share from Facebook before suing.

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