copyright Facebook

You may have heard that a guy named Paul Ceglia sued Facebook to claim his 84% ownership of the company that he swears Mark Zuckerman gave him in 2003. This is an interesting story, but not necessarily a threat to Zuckerberg’s throne.

Last year, Paul Ceglia was arrested for defrauding customers out of $200,000 in prepaid orders for wood pellets. After his release, Ceglia spent some time rifling through his files looking for assets he could use to pay off his debts. That’s when he says he stumbled onto a golden ticket: a 2003 contract between his company and a young Mark Zuckerberg that allegedly granted Ceglia 84% of Facebook in its most embryonic stage.

The contract is slim and funky. Under the contract, here are the big things that are supposed to happen:

1. Ceglia hires Zuckerman to spend 1 month writing code for Ceglia’s database.
2. Cegia buys Zuckerman’s existing project, “The Face Book” and hires Zuckerman for 6 months to finish it.
3. Ceglia agrees to pay Zuckerberg $1,000 for the month of work on the database and another $1,000 for both “The Page Book” and the future 6 months of work on it.
4. Ceglia gets 50% of “software, programming language and business interests derived from the expansion of that service to a larger audience.”
5. Zuckerman takes all the risk and indemnity obligations; Ceglia gets all the rewards.

I’ve read the contract. I’ve embedded it below. Let’s assume, for a second, that the contract does grant Ceglia 84% ownership in the project Zuckerberg was working on at the time – that does not necessarily include what we now know as Facebook, but there are other, more immediate reasons why this contract’s threat to Zuckerberg should not be overstated.

The Contract May Be Hacked

The first suspicious thing about the contract is a simple one: the layout of the contract is drastically different depending on what’s happening to Zuckerberg.

Spacing between sections. Take the spacing in between sections. On page 2 (where nothing really really bad happens to Zuckerberg), each section is separated by 2 spaces from the other sections. And, the contract starts off the same way – each section is 2 spaces away from the next one. But, then you get to the second column of the first page – the paragraphs are 4 or 5 spaces away from the next one. Consider where the big jump in paragraph spacing starts. The bulk of the bad news for Zuckerberg is in Sections 2 and 3 – it’s already over for Zuckerberg’s ownership prior to Section 4 (The rest of the document is a badly drafted, but otherwise a normal and one-sided, work for hire contract.) For Zuckerman to lose, Ceglia has to prove that Sections 2 and 3 forked over Facebook to him. And, thus it is noteworthy that Section 3 is the first moment that needed plenty of breathing room – Section 3 leads into a 5 space gap that is picked up on the rest of page 1 but abandoned by page 2. Almost like someone needed to fill some vertical space with pasted paragraphs. Why does this matter? It matters because for Zuckerman to be in deep trouble, he had to have given away his ownership – if he didn’t, and this agreement was hacked, then the fact that some of the paragraphs are 5 spaces apart and all other paragraphs are 2 spaces apart seems suspicious.

Internal spacing. Then, there is the odd internal spacing inside the paragraphs. All of the sections on page two are just groups of paragraphs without any spacing in between them and so is most of page 1. However, the most important sentence of the contract – the part where 50% of ownership of programming language and business interests is given away – is set off from its neighboring sentences by a good two spaces. Why?

Column Gaps. Finally, take a look at the column spacing in Page 2 – there is a ¾ inch gap between the two columns. Then, look at Page 1, the only one that matters, and see it: the space between the columns on Page 1 is TINY – a centimeter. Let me tell you the big reason why this really really matters. This document, made in 2003, most likely was made in Word. To get a single document to have different column spacing on adjacent pages, you have to insert a section break at the end of page 1. This contract was obviously some form, haphazardly put together – It seems farfetched that the editor of the original contract would insert a section break and then change the column spacing. There is no difference in headers or footers to indicate that the contract needed to be split into two section. Add the varying column spacing and this contract looks – on its face – like a scrapbook of collaged terms.

It’s Not Clear That The Ownership Grant is for Ceglia (it may actually be for Zuckerberg)

I think it is possible that the language actually gives Zuckerberg ownership of half of Ceglia’s database, not the other way around. Remember that Zuckerberg was hired, first, to work on Ceglia’s database with “the Programming language to be provided by [Zuckerberg.]” and, second, to provide “continued development of the software, programs and … design of a suitable website for” a project Zuckerberg had “already initiated…” But, the part of the contract that grants a 50% ownership in something says “[Ceglia] will own a half interest in the software, programming language and business interests derived from the expansion of the service to a larger audience.” [emphasis added] So, Zuckerberg was hired to provide “programming language” for Ceglia’s database under a work for hire arrangement, and Ceglia gets to own 50% of programming language. Later on, in the proprietary rights section on page 2, the contract says that all IP that Ceglia provides belongs to Ceglia. Frequently, contracts will say that what you bring to the table you own and what I bring to the table I own; then, anything you make for me, or we make together, we split. This all seems consistent. It is certainly not a slam dunk grant of Facebook to Ceglia.

Statute of Limitations

Most importantly, forget everything else – the statute of limitations for contract disputes in  both New York and Massachusetts is 6 years. The complaint, which was filed on July 9, 2010 is just beyond the statute of limitations. Unless Ceglia can argue that the breach happened on or after July 8, 2010, this case will get thrown out. Quickly.

The Moral of the Story

Assuming the contract is legitimate, then the big lesson is that even if you are ambitious and hungry, don’t sign over rights or control, particularly for just a $1,000. Oh, and also, some people suck. If it is not legitimate, then the lesson is to always have adequate liability insurance to pick up the legal fees you incur in defending yourself against frivolous or harassing lawsuits.