New York appellate attorney Joshua Rosenkranz of Orrick shares how he successfully represented Facebook at the 9th Circuit against the Winklevoss twins.
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Well, so you may have seen the movie The Social Network. You know it was about the Winklevoss twins, referred to in the movie as the Winklevii, who claimed that they owned three-quarters of Facebook. The case had been going on for years, and you know at the end of the movie there’s a placard that says, “The Winklevii settled with Facebook for $60 million.” Turns out that wasn’t true. There’s a sequel to this story, and I’ve been negotiating with Paramount for who’s gonna play me. But in the sequel, the Winklevii get cold feet. They get what I refer to in the Ninth Circuit as “settler’s remorse.” They decided that they hadn’t cut the best deal.
The $60 million was not exactly how it was phrased. It was a one-and-a-quarter page handwritten settlement agreement, and in that one-and-a-quarter page they agreed that they would get $20 million and a stated number. It was 1.2 million-plus shares of Facebook. And to blow up the settlement agreement – because they now thought Facebook is worth then $100 billion and they saw big dollar signs – they claimed that Facebook committed, and Mark Zuckerberg committed, securities fraud in the negotiation of that settlement, because this was an exchange of securities.
That they came into the case, into these settlement discussions that is, with a thought in their head. Their thought was that the shares were worth $36.00 a share, come to find out, they realized later, Facebook had done an internal evaluation, an internal valuation of the stock, that put it at $9.00 a share. And their theory was Facebook should have known that was relevant to them, should have volunteered that information, and if only they had known that information, they would have settled for even more Facebook stock. So that was the legal issue which we ended up prevailing on in the Ninth Circuit to end what was a multi-year and many billion dollars worth of exposure.