Facebook settlement upheld

US DISTRICT JUDGE James Ware ruled Wednesday in Boston, Massachusetts that the financial settlement Facebook had negotiated with Connectu last February is enforceable.

Connectu is a Harvard based dating website where Facebook founder Mark Zuckerberg worked for a while before he started the popular Web 2.0 social notworking operation. After Facebook subscribers and web traffic skyrocketed into the stratosphere, Connectu alleged that Zuckerberg improperly appropriated its ideas in order to develop Facebook.

Facebook and Connectu agreed upon a financial settlement in February. In exchange for some undisclosed cash payment and a set number of shares of Facebook common stock, Connectu agreed to drop its claims against Facebook.

Connectu later attempted to renege on the terms of the settlement, claiming that the deal was fraudulent, missing material terms, not signed by all Connectu shareholders, based on a different valuation than Facebook is actually worth, and was therefore unenforceable.

"ConnectU's founders were represented by six lawyers and a professor at Wharton Business School when they signed the settlement agreement," Facebook said in a statement. "The ConnectU founders understood the deal they made, and we are gratified that the court rejected their false allegations of fraud." Facebook further characterised Connectu's attempt to overturn the settlement as simply a case of buyer's remorse.

Judge Ware found that the settlement agreement reached clearly stated the material terms, consideration and means of payment. He also ruled that, because the Connectu shareholder who hadn't signed the agreement owned only one per cent of Connectu stock, his consent "is unnecessary to make the agreement binding on him."

Connectu claimed that Facebook misrepresented the company's value. In October 2007, Microsoft paid $240 million for a small stake in Facebook that, multiplied out, values the entire company at $15 billion. Facebook did not dispute that it quoted a different valuation to Connectu during discussions, but Judge Ware said it "did not make any representations or warranties in the agreement about the value of Facebook common stock."

Judge Ware also noted that the shares discussed in the agreement and the shares involved in the Microsoft deal "are of different classes," he wrote in his decision. "Accordingly, the failure to disclose the difference in valuations cannot be fraudulent as a matter of law."

Connectu reportedly had no immediate comment on the decision. µ

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