The end is finally nigh for the ongoing litigation roller coaster that is the Facebook/Mark Zuckerberg v. Cameron and Tyler Winklevoss saga. This has always been an interesting piece of software litigation based upon (a) the personalities involved and (b) the scale. It is safe to say that when you are one of the fastest growing companies in the country, you are going to face litigation. In fact, that's why you call me. And it is equally logical that when you are creating a website or working in the cloud or with a software service level agreement, you are going to get naysayers claiming that you stole their idea. In those instances, I would recommend one look at the various rulings in the Facebook case. Not necessarily for guidance, but to see the lengths and costs that can arise. Plus, it's just fun to read.
The most recent ruling came out today from the Ninth Circuit. The main issues left in this case are the enforcement and avoidance of a settlement agreement reached at mediation between the parties. The rub in this case arose because the parties entered into a "term sheet and settlement agreement" that set forth the basic framework of settlement but called for the parties to hammer out the details later. This arose after a lengthy confidential mediation session. The parties then parted company and began working on documents, after which time the wheels then fell of the proverbial bus. Basically, the Winklevosses decided that they didn't like the deal they had struck and that they should have received a higher valuation on the shares of Facebook they were to receive. Facebook sought to enforce the deal as drafted and the Winklevosses fought it. Ultimately, the Court agreed with Facebook and the Winklevosses appealed.
Chief Judge Alex Kozinski wrote a very good opinion that addresses the parties' concerns and is, in my opinion, a good resource for three basic practice points:
The bottom line of this case (which can be found here) is that, if you are going to use litigation to attain that which you could not in the marketplace, be prepared to accept the consequences when you sign on the dotted line at your settlement.
Two interesting quotes from the opinion: "The ensuing litigation involved several other parties and gave bread to many lawyers, but the details are not particularly relevant here," and "At some point, litigation must come to an end. That point has now been reached."
So too, has the end of this post.
The most recent ruling came out today from the Ninth Circuit. The main issues left in this case are the enforcement and avoidance of a settlement agreement reached at mediation between the parties. The rub in this case arose because the parties entered into a "term sheet and settlement agreement" that set forth the basic framework of settlement but called for the parties to hammer out the details later. This arose after a lengthy confidential mediation session. The parties then parted company and began working on documents, after which time the wheels then fell of the proverbial bus. Basically, the Winklevosses decided that they didn't like the deal they had struck and that they should have received a higher valuation on the shares of Facebook they were to receive. Facebook sought to enforce the deal as drafted and the Winklevosses fought it. Ultimately, the Court agreed with Facebook and the Winklevosses appealed.
Chief Judge Alex Kozinski wrote a very good opinion that addresses the parties' concerns and is, in my opinion, a good resource for three basic practice points:
1. What is and is not material to a settlement transaction?: There was much debate over whether the documentation that arose after the settlement agreement and the hundreds of pages of papers requested were really part of the deal. If they were material and were not present at the original mediation, it would be unenforceable. If they were not material, it could be enforced. The Court decided that the necessary components were there at the mediation and the parties contemplated this type of on-going drafting and document exchange, therefore the presence of the documents was not material. There is good analysis on the materiality distinction.
2. Can you have securities fraud when you're really smart?: The Winkevosses also claimed fraud and violations of the Securities Exchange Act for the valuation of the shares of Facebook they were to receive. The Court goes into great detail to discuss the securities law components of this claim and ultimately decides that when you have a sophisticated party and lots of input from lawyers and experts, you run into a caveat emptor- (buyer beware) type situation. This is something that arises often in business law because we frequently have sophisticated entities and lots of expert opinion. The moral of this story is to be careful about choosing how many of them you bring with you to mediation. Or, if they are there, don't complain later.
3. Confidential is confidential: The final point addressed is Winklevosses' attempt to use information from the confidential mediation to justify their subsequent position. The Court very clearly enforces the rule that confidential means just that. You can't later try to use those facts to support your subsequent motions to the Court. Such a practice would defeat the mediation process. Your favorite technology legal counsel does not always tout the wonders and benefits of mediated resolution. It, like everything else in the trial attorney's arsenal, is a tool to be used when it best serves the interest of the client. Nevertheless, I do agree that in order for it to work, what is said there must be in confidence. Resolution can only be reached through honesty. Feel free to write that down.
3. Confidential is confidential: The final point addressed is Winklevosses' attempt to use information from the confidential mediation to justify their subsequent position. The Court very clearly enforces the rule that confidential means just that. You can't later try to use those facts to support your subsequent motions to the Court. Such a practice would defeat the mediation process. Your favorite technology legal counsel does not always tout the wonders and benefits of mediated resolution. It, like everything else in the trial attorney's arsenal, is a tool to be used when it best serves the interest of the client. Nevertheless, I do agree that in order for it to work, what is said there must be in confidence. Resolution can only be reached through honesty. Feel free to write that down.
The bottom line of this case (which can be found here) is that, if you are going to use litigation to attain that which you could not in the marketplace, be prepared to accept the consequences when you sign on the dotted line at your settlement.
Two interesting quotes from the opinion: "The ensuing litigation involved several other parties and gave bread to many lawyers, but the details are not particularly relevant here," and "At some point, litigation must come to an end. That point has now been reached."
So too, has the end of this post.
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