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Appeals court upholds Facebook settlement

Three-judge panel calls Winklevoss twins 'sophisticated litigants'

A federal appeals court in San Francisco Monday upheld a multimillion-dollar settlement between Facebook Inc. chief executive Mark Zuckerberg and three Harvard classmates who claimed he stole their idea of a social-networking website.

The 9th U.S. Circuit Court of Appeals said a settlement reached in federal court in San Jose in 2008 was "valid and enforceable" and that twins Cameron and Tyler Winklevoss and classmate Divya Narendra could not back out of it.

A three-judge panel said the Winklevosses and Narendra were "sophisticated litigants" and knew or should have known what they were doing when they signed a handwritten agreement ending their lawsuit and a counterclaim filed by Facebook. The purpose of the pact was that "both sides would stop fighting and get on with their lives," Circuit Judge Alex Kozinski wrote.

The agreement was valued by one of the twins' lawyers at the time at $65 million, including $20 million in cash and 1.25 million shares in Palo Alto-based Facebook, the world's largest social-networking site.

The Winklevosses and Narendra hired Zuckerberg as a consultant for a networking site they were developing when all four were Harvard College students in 2003. The Winklevosses claimed Zuckerberg stole the idea of their own website, called ConnectU. The dispute was chronicled in the 2010 Oscar-nominated movie "The Social Network."

Among other claims, the Winklevosses accused Facebook of violating securities law by allegedly leading them to believe the shares were worth about $36 each when they actually were worth about $9 at the time. But the court noted that the Winklevosses and Narendra were aided by a team of six lawyers and a financial expert -- former accounting professor Howard Winklevoss, the twins' father -- when they signed a broad release of all claims.

"The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world's fastest-growing companies," Kozinski wrote.

"As sophisticated litigants, the Winklevosses or their counsel should have ... understood that the broadest possible release includes both known and unknown securities claims," Kozinski said.

Kozinski also wrote that the Winklevosses "made a deal that appears quite favorable in light of recent market activity."

The panel noted that investors recently valued Facebook at $50 billion, which would make the shares worth more than three times what the Winklevosses and Narendra thought they were worth when they agreed to the settlement. Jerome Falk, a lawyer for the twins, said they would ask the appeals court to review the case with an expanded 11-judge panel.

Facebook did not respond to a request for comment Monday. The twins, 29, competed in men's pair rowing in the 2008 Olympics in Beijing.

— Bay City News Service

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