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Another Suit Over the Spoils of Facebook


A onetime contractor says he's 84 percent owner of the social site

A lot of people in Silicon Valley scratched their heads this week and asked: Who is Paul Ceglia? A Web designer from sleepy Wellsville, N.Y., Ceglia is hardly a member of the technorati. That didn't stop him from making the claim in a lawsuit that he owned 84 percent of Facebook—and winning a temporary restraining order from a state Supreme Court judge on June 30 freezing the social network's assets. The court's action was based on a contract Ceglia signed with Facebook founder Mark Zuckerberg to do work on an early version of the now-famous entrepreneur's operation in 2003. Legal experts say Ceglia has little chance of prevailing because the Empire State has a six-year statute of limitations on breach of contract claims.

Whatever the case's merits—a Facebook spokesman says it has none whatsoever—attorneys who specialize in technology and intellectual property say they've noticed a rise in such claims. "We are starting to see more and more lawsuits involving the ownership of ideas and who has the right to commercially benefit from them," says M. Todd Sullivan, a North Carolina attorney who blogs about trade secrets.

Sullivan points to a complaint filed earlier this year in California by one Errol Hula. Hula claims NBC Universal stole his ideas and used them to create the online video site Hulu with News Corp. (NWS) after he shared his plans for a similar offering with the company in 2006. Robert Vantress, Hula's attorney, says the most telling evidence in his client's favor is the similarity between Hulu's name and that of his client. "It's too fantastic for me to believe that they came up with that name without it," Vantress says. Hulu declined to comment.

Cases Are Proliferating

A higher-profile case involving similar claims was the fight last year between Martin Eberhard and Elon Musk, the co-founders of electric-car maker Tesla Motors (TSLA). Eberhard accused Musk of forcing him out of Tesla in 2007 and taking credit unfairly for the company's creation. The suit was later settled.

Sullivan says these cases are proliferating because the public has never been more aware of the value of an idea. Facebook is worth about $25 billion, according to SharesPost, a marketplace for privately held companies. Zuckerberg, 26, has already duked it out in court with two former Harvard classmates, Cameron and Tyler Winklevoss, who accused him of stealing their ideas. The case eventually settled—and will be reexamined in The Social Network, a movie about Facebook's early days coming to theaters in October.

Tech entrepreneurs starting companies in dorms or garages are often as short on business savvy as they are long on dreams, according to Jeffrey Neuburger, co-head of the technology, media, and communications group at law firm Proskauer Rose. That leaves them legally vulnerable, he says: "A lot of them can barely afford to buy lunch, let alone hire a lawyer." Neuburger says most of these matters are settled quickly and expects the same to happen with Ceglia. Ceglia's attorney declined to comment.

The bottom line Although a new suit against Facebook has little chance of success, it's part of a growing number of claims over ownership of ideas.

Leonard is a reporter for Bloomberg Businessweek in New York.

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