Facebook Ownership Case Faces Key Juncture

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Facebook is seemingly on top of the world as it continues to bring in ad revenue and prepares to go public, but a lawsuit that aims to bring iconoclastic founder Mark Zuckerberg down to Earth is nearing a key juncture.

Mark Zuckerberg
The legal team for Paul D. Ceglia, who claims to own at least 50 percent of the social network, is expected Wednesday to present its discovery plan in court related to evidence in the case. It is common in lawsuits for both sides to seek documents from the other and fight it out with a judge when there are disputes.

If the plan is approved, it could empower Ceglia's lawyers to look at vast amounts of information about the early workings of Facebook and Zuckerberg -- an unwelcome prospect for a company planning to raise some $5 billion in an IPO later this year.

"We look forward to examining records from computers that Mr. Zuckerberg used when he was a freshman at Harvard and other records that will help answer questions about the ownership of Facebook," Sanford Dumain of the New York City law firm Milberg LLP said in a statement.

"We hope that the court will rule that the time has come for that process to begin," he added.

Milberg is the latest law firm to take up Ceglia's cause in court. Its entry into the case is significant because it's a high-powered law firm known for its involvement in high stakes lawsuits.

Since Ceglia began raising his legal claims to ownership in June 2010, Facebook has been dismissing them as frivolous, or worse. Last week, it filed a motion to dismiss the lawsuit claiming it's nothing more than a "fraudulent shakedown."

In its motion, Facebook declares "Ceglia, a career criminal and hustler, has perpetrated a massive fraud on the federal courts and Facebook."

Paul Ceglia
Needless to say, that's not the view of the case taken by Milberg.

"We took a good hard look at all of the information available, including evidence in Mr. Ceglia's favor, and we believe he deserves to have his day in court," Dumain declared when Milberg announced its intention to enter the fray.

"It should be up to a jury to weigh the contradictory claims, including evidence that supports Mr. Ceglia’s case, such as his email correspondence with Mr. Zuckerberg and experts' testimony about the authenticity of the contract," Dumain added.

The jury scenario seems unlikely, though, and chances are Facebook will pay Ceglia to go away before things get too hairy, as it did with the Winklevoss twins, who received $160 million to settle their ownership claims on the social network.

In his complaint against Facebook, Ceglia claims he hired Zuckerberg in 2003 to perform work relating to StreetFax.com, a website previously operated by Ceglia.

The complaint also alleges that agreement provides that Ceglia would pay Zuckerberg $1000 to finance his work on "The Face Book." In exchange, it maintains, Ceglia would own a "half interest (50%) in the software, programming language and business interests derived from the expansion of that service to a larger audience."

In its motion to dismiss, Facebook, which pulled in $3.7 billion in revenue last year and has more than 800 million users, claims the contract submitted to the court by Ceglia is a forgery created by him to support his fraudulent lawsuit.

Facebook’s experts found the authentic StreetFax contract on Ceglia’s own computer hard drive, the motion explained. That authentic contract concerns only the limited website development work that Zuckerberg performed for StreetFax. It says nothing about Facebook.

It added that the authentic StreetFax contract proves that Ceglia’s fraudulent Work for Hire is just a recently doctored version of the actual contract between Zuckerberg and StreetFax.

Meanwhile, Ceglia alleges that the real fraudster in the case is Facebook. He told Emil Protalinski, of ZDNet, that the putative "authetic" contract discovered by Facebook's forensic experts was planted on his computer to discredit his case and that his lawyers could prove the document was a phony.

Whether Ceglia's case is dead in the water or will continue on what's been a Byzantine path could be decided when both sides appear before U.S. Magistrate Judge Leslie Foschio on Wednesday.

Follow freelance technology writer John P. Mello Jr. and Today@PCWorld on Twitter.

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