Mark Zuckerberg's former Harvard classmates, the Winklevoss twins - Cameron and Tyler - who accused him of stealing their idea for Facebook, suffered a crushing defeat in federal court on Monday.  They lost their appeal and were unceremoniously "written out of the script."   In his opinion, Chief Judge Alex Kozinski wrote:  "At some point, litigation must come to an end.  That point has now been reached." 

The U.S. Appeals Court ruled that Cameron and Tyler Winklevoss must accept a cash and stock settlement with Facebook that had been valued at $65 million.  In a 2008 settlement - dramatized last year by the Hollywood film "The Social Network" - the Winklevosses got $20 million in cash and $45 million in Facebook stock to drop their suit claiming that Facebook co-founder Mark Zuckerberg stole their idea after he agreed to work for their company, called ConnectU, on a similar website.

However, the Winklevoss twins, along with ConnectU co-founder Divya Narendra, tried to back out of the settlement, claiming they were duped about the valuation of Facebook.  They had accepted their $45 million of stock at a price that valued Facebook at $15 billion - the same value that Microsoft Corp. had given Facebook in an investment in the company several months earlier.  Yet after they signed the settlement, the Winklevosses said they learned that Facebook's board had adopted an internal valuation of just $3.7 billion.  Had this lower valuation been used, the Winklevoss twins would have received more Facebook shares in the settlement.

Of course, the Goldman Sachs Group recently provided $500 million in funding to Facebook, which valued the company at $50 billion.  That gives the Winklevoss shares from the settlement a value of about $150 million.

        Settlers' Remorse.   Facebook argued that the ConnectU founders were simply suffering from "settlers' remorse" in trying to back out of the settlement.  The U.S. Court of Appeals for the 9th Circuit agreed, saying the twins weren't the first parties bested by a competitor who then sought to get through litigation what they were unable to achieve in the marketplace.

"The courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook," Judge Kozinski said.  But he said he saw no reason to allow them to back out of the settlement.

An attorney for the brothers, Jerome Falk Jr., said his clients would seek a rehearing before a larger, "en banc" group of 9th Circuit judges.

        Another Case on the Horizon.   Meanwhile, a New York man filed an amended lawsuit against Zuckerberg on Monday, citing a 2003 email in which Zuckerberg discusses an urgent need to launch his site before "a couple of upperclassmen" could launch theirs, an apparent reference to the Winklevoss twins.  The New York businessman, Paul Ceglia, claims a contract with Zuckerberg to develop and design a website entitled him to an 84% stake in the privately held social networking site.

"If we don't make a move soon, I think we will lose the advantage we would have if we release before them," the lawsuit claims Zuckerberg wrote in an email.  Ceglia claims Zuckerberg pleaded with him for money to finance the social network's set-up with the intention of getting it live before the other site.

The Winklevosses case in the 9th Circuit is "The Facebook Inc v. ConnectU Inc. 08-16745."   Now, onto the Ceglia case.  [WSJournal, Reuters, 4/11]