The massive hole in Facebook's latest legal challengeJuly 21, 2010: 9:04 PM ET
By David Kirkpatrick, contributor
Mark Zuckerberg says he owes nothing to Paul Ceglia, the man who recently emerged from the woodwork with the extraordinary claim that he owns 84% of Facebook.
Ceglia hired Zuckerberg -- then an 18-year-old college freshman -- in April 2003 to help him program his own Web project, a sort of reference for street intersections to be used by insurance companies and others. Ceglia claims Zuckerberg took $1,000 of his money and, in return, signed a contract giving him 50% of a project Zuckerberg was undertaking called "The Face Book." Thanks to contractual provisions, that stake increased to a whopping 84%, Ceglia claims.
Zuckerberg says that is bunk. I asked him, through a Facebook spokesman, whether there is any truth to Ceglia's claims that he sold an ownership interest in what later became Facebook.
"Of course not," replied Zuckerberg. "It was all about his website. I hadn't even thought of Facebook yet. How could I have given him an ownership interest in it?"
I recently published a book titled The Facebook Effect: The Inside Story of the Company That is Connecting the World. In the book, I detail how in 2003 Zuckerberg and three computer science-student pals shared an apartment and spent the summer talking about the ways the free flow of information on the Internet -- and a new social sort of software -- were changing the world.
Following those discussions, Zuckerberg went back for his sophomore year at Harvard and created an increasingly sophisticated series of website experiments. They culminated in February 2004 with to the creation of what was then called "thefacebook.com." As I report in my book, Zuckerberg says he didn't get the idea for "thefacebook" until late in the fall semester of 2003, and did most of the programming in January 2004.
Zuckerberg concedes that he performed several software programming jobs for Ceglia. Zuckerberg had been advertising on Craigslist that he was available for such jobs, and Ceglia contacted him there -- as did others from whom Zuckerberg accepted work-for-hire jobs.
Ceglia's lawyer claims he has a document in which Zuckerberg signed over a 50% stake in the then-undeveloped TheFaceBook. The case has been taken seriously enough that it is now pending in federal court in Buffalo. But Facebook's lawyers have yet to see the document, despite repeated requests. A poorly reproduced copy was filed with the court.
If Ceglia has the document his lawyers claim, why did he wait seven years to pursue it? This was a period during which he was accused of defrauding customers for his wood fuel business to the tune of $200,000.
While he was the owner of at least half of a company that was worth billions? Really?
"Plaintiff's counsel approached us and offered to discuss ways to make this go away," says Facebook spokesman Barry Schnitt. "We declined."
Ceglia's attorney, Terrence Connors, did not respond to a request for comment.
Kirkpatrick was for many years Fortune's senior editor for Internet and technology. His recent book is The Facebook Effect: The Inside Story of the Company That is Connecting the World.