A deal is a deal

If you’ve seen “The Social Network,” the movie about Facebook, you remember the Winklevoss twins. These Harvard students sued Facebook’s founding genius, Mark Zuckerberg, alleging he stole the idea for Facebook from them.

Here’s what happened in real life. When the suit was dismissed on technical grounds, the parties went to a mediator. After a day of negotiations, they signed a handwritten “Term Sheet & Settlement Agreement,” which provided for the twins to drop their claims in exchange for cash and part-ownership in Facebook.

Later, the parties couldn’t agree on a formal contract to carry out the settlement. The twins said the deal was off, but Zuckerberg disagreed. Last week, a federal appeals court in California determined the ensuing litigation in Zuckerberg’s favor. The written decision, authored by Chief Judge Alex Kozinski, concludes with these words:

The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook. With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity.  See [a Wall Street Journal article] (reporting that investors valued Facebook at $50 billion . . . 3.33 times the value the Winklevosses claim they thought Facebook’s shares were worth at the mediation). For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached.

Decisions like this are rendered by the hundreds every day in America’s courts. They reaffirm the certainty that parties need when they enter into contracts. Yes, there can be legitimate disputes, and I’m not saying the Winklevoss position was frivolous. But it’s important to know that, despite widespread infringements on contractual freedom, courts have not lost sight of the need for contracts to be enforceable.

Image: Wikimedia Commons

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