Aaron Sorkin’s movie, The Social Network, immortalized the case ConnectU v. Zuckerberg. Although the case dealt with many complex intellectual property issues, in the end, it came down to one thing: discovery. The short, now famous, story, as alleged by ConnectU, i.e., Tyler and Cameron Winklevoss and Divya Narenda, is that they hired Mark Zuckerberg, now the world’s youngest billionaire, then a lowly sophomore at Harvard, to finish a website that they had envisioned after their two previous programmers had to stop work. After explaining their idea and giving Zuckerberg access to the code, ConnectU alleged that rather than delivering a completed site as promised, Zuckerberg stole the idea and launched The Facebook.
According to the Complaint filed by ConnectU, three days after claiming to have finished the ConnectU website (then called HarvardConnection), Zuckerberg registered TheFaceBook.com domain. Within two weeks, the website, thefacebook.com (now facebook.com) launched. After the launch of TheFacebook, ConnectU hired another programmer to finish their site, which launched almost four months after TheFacebook.
The Winklevosses and Narenda alleged that Zuckerberg stole their idea, their code, misled them, and then usurped a competitive advantage by entering the market first. They sued Zuckerberg and his team for copyright infringement, misappropriation of trade secrets, breach of fiduciary duty, unjust enrichment, unfair business practices, intentional interference with prospective business advantage, breach of duty of good faith and fair dealing, fraud, and breach of contract.
The case settled with the execution of a terms sheet following a court-ordered mediation. Although the monetary terms of the settlement were to remain confidential, in their excitement over the amount, the plaintiff’s attorneys disclosed the amount ($65 million) in their marketing literature and were summarily fired and sued by the plaintiff for malpractice. ConnectU lost this bid and was ordered to pay its outstanding legal fees.
But it was not only their lawyers that the Winklevosses were unhappy with. The Winklevosses, this time not as ConnectU, returned to court to attempt to get the settlement thrown out, alleging, among other things, that Zuckerberg and Facebook had withheld material documents. The mediation, which occurred in February, suspended discovery. But the Winklevosses learned that documents identified in December, which they called “smoking guns,” were not produced before the mediation and argued that these documents should have been produced.
Discovery in the case was a “rolling discovery,” which is not uncommon in this age of information overload. As relevant documents are identified, they are produced, with search and identification continuing. At the time of the mediation, “[I]t was known by ConnectU that Facebook had documents that they had not yet produced, but the importance of those document[s], [ConnectU] didn’t know.”
The Winklevosses had learned about the so-called “smoking gun” documents from the forensic IT expert involved in the case, who was assigned to gather only the code from Facebook hard drives. While doing this, he found these documents and told the plaintiff about them. Despite these “smoking gun” documents, the settlement agreement was upheld. The Winklevosses argued that the settlement was procured by fraud, but in upholding the agreement the Ninth Circuit reasoned, “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 market-place. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook.”
The Winklevosses signed a term sheet without all the information they would have liked to have had in front of them. However, Facebook was not found to be in violation of the discovery order. “Somebody can’t claim fraud when they managed to settle the case when there were things outstanding and they knew they were outstanding.”
Rolling discovery and the volume of documents in most litigations makes it complicated to understand when there is truly enough information available to settle a case. Facebook was under no obligation to inform ConnectU that the documents that were not produced were material.
This case reinforces the importance of carefully planning and monitoring discovery in litigation. Putting together a comprehensive discovery plan early and updating the plan throughout production will help identify any holes in the data. Having a checklist, a wish list, assists is recognizing gaps in knowledge. Also, understanding the production volume remaining will give you a better picture of what may still be undiscovered.
It is difficult to anticipate in advance where the most useful information may be located, but brainstorming sources for information can assist in creating an effective discovery plan. In this case, the discovery order was narrowly tailored so that the forensic IT expert was only supposed to collect source code, but he found what he thought was a “smoking gun;” the “smoking gun” was not source code.
With few exceptions, settlement agreements are legally binding. Sign term sheets with the information you want in hand because you may not get another bite at the apple. In the words of Chief Judge Kozinski of the Ninth Circuit to the Winklevosses, “At some point, litigation must come to an end. That point has now been reached.”