Legal Commentary

Study a real life contract dispute involving a famous internet company

By Ernie Svenson

Contract law is a required course for pretty much every law student, and what is taught has almost nothing to do with the issues that get litigated in court when there is a dispute about a contract. Here's what you learn in law school: (1) offer & acceptance, (2) consideration, and (3) damages.

I've never had a contract dispute where there were serious issues about whether the contract was accepted. There are such cases, but they're not common. Same with issues about consideration. Damages are obviously part of every contract dispute, but the issues are usually more about evidentiary considerations or whether damage claims (e.g. future profits) are too speculative.

Rather than spending two weeks discussing a 1914 case about a guy in New Hampshire who wanted a skin graft, most law students would be better off reading The Accidental Billionaires. After all they all know about Facebook, and how much money Mark Zuckerberg has made off of a site that he created in his Harvard dorm room. What they (and most other people) don't know is the contract law issues that lead him to get sued by his classmates, Tyler and Cameron Winklevoss. 

There are several important contract law principles that come into play, which are "meat & potatoes" stuff for lawyers who do business litigation. And there are some common intellectual property law issues to boot. Issues such as: do you have a right to an idea just because you thought of something (which would require a lot of complex work to actually make real)? Can you sue someone who that you reveal your idea to if (1) you never had a written contract or NDA, and (2) your idea was not exactly what the other person wound up creating?

The Winklevoss twins may have been responsible for planting a seed in Mark Zuckerberg's brain that wound up becoming Facebook, but that's not in itself the basis for liability. I'm not going to recite the facts (as set out by the author of The Accidental Billionaires) because it'd take too long, and those are not necessarily the real facts. What the real facts are doesn't matter, though. The ones in his book would work well as the basis for teaching law students about how contract disputes actually arise. The case between the Winklevoss's and Zuckerberg was settled, which is another important lesson for law students. Whatever it settled for, I can say this with certainty: it would have settled for a lot more if the Winklevoss's had a written agreement.

One of my favorite parts in the book is when the Winklevoss's get an audience with the President of Harvard, then Larry Summers. They had accused Zuckerberg of violating Harvard's moral conduct policy, and they supposedly expected the President of Harvard to interpret that policy to help them in their private dispute against Zuckerberg. Summers waives them off, pointing out that the University's policy is there for the benefit of the school in a dispute with one of its students, not for disputes between students. The Winklevoss's are dumbfounded by his reluctance to side with them.

Another great lesson: parties to a dispute have no sense of perspective; they think that every argument they can make is one that they should win on. Why? Because they believe (1) they have truth on their side, and (2) the system will seek out and support the side that has truth. The first believe is an error caused by biased thinking. The second is completely naive.

The system doesn't care about truth; it cares about who can meet a burden of proof. Theoretically, you can prove a contract by testimony alone. Practically, you're dead without some kind of written document. Unless you can somehow settle for the cost of litigation, which I'm guessing is what Zuckerberg did.

Yeah, law schools should spend at least half of Contracts Law class on the Facebook case.

Full post as published by Ernie the Attorney on November 10, 2010 (boomark / email).