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Facebook Reportedly Near Accord Over Origin (New York Times)
By BRAD STONE and MATT RICHTEL
Published: April 8, 2008

SAN FRANCISCO — Facebook may soon close an uncomfortable chapter in its brief history: a legal dispute over its origins.
According to a person briefed on the talks, the company is completing a settlement of a suit brought by three former Harvard students who contend that the original idea for the social networking site belonged to them.

The person declined to discuss the proposed terms of the settlement. Facebook officials declined to comment. So did officials from ConnectU, a social networking site started by the brothers Cameron and Tyler Winklevoss and Divya Narendra.

The ConnectU founders were contemporaries at Harvard with Mark Zuckerberg, Facebook's founder. They asserted that they had hired Mr. Zuckerberg, then a sophomore, to help create a campuswide dating site called Harvard Connection.

They say that he stalled on the project while nurturing his own related idea, which ultimately became a site called Thefacebook.com. They sued Mr. Zuckerberg in Federal District Court in Boston. Facebook countersued in California, accusing ConnectU of unfair business practices.

A federal judge in California ordered the parties into mediation last year. The person briefed on the settlement negotiations, who declined to be identified because the deal was not yet completed, said motions to dismiss the case against Facebook were expected "within weeks."

The case has caused public-relations problems for Facebook, one of the most popular social networking sites with 69 million users. It threatened to cause financial problems as well. Outside investments have valued the company at $15 billion, and it is expected to sell shares to the public, perhaps as soon as next year.

"You can't do that sort of thing if you have major liability hanging over your head," said Paul Kedrosky, a technology venture capitalist and author of the blog Infectious Greed.

Mr. Kedrosky said that regardless of which side was right in the legal dispute, Facebook needed to get the situation resolved sooner rather than later. In part, he said, that is because Facebook does not want to miss the chance at a lucrative payday in the public markets or through an acquisition.

The social networking audience "is fragmenting. It's going to a thousand places," he said. "I'm a little worried that Facebook has missed the best window for its offering."

At the same time, the dispute was personally embarrassing to Mr. Zuckerberg. The discovery efforts associated with the legal disputes resulted in the Internet posting of his Harvard application and entries from his diary.

While the Facebook story has generated a great deal of attention, such disputes are not an uncommon occurrence in Silicon Valley. Technology innovations often have many parents, and conflicts can arise over whether the innovator or entrepreneur who did the most to develop a product is properly getting the credit, and the riches.
In the case of Facebook, there is yet another aggrieved innovator. Aaron J. Greenspan, who was a Harvard student at the same time as Mr. Zuckerberg, asserts that he created an earlier social networking system called houseSYSTEM. Six months before Facebook went online, and eight months before ConnectU opened, Mr. Greenspan sent a note to Harvard students describing a new feature of houseSYSTEM called "The Face Book."
[posted for blogger.com]