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Don’t Get Winklevossed: Get it in Writing

Don’t Get Winklevossed: Get it in Writing

Winklevossed (verb) – to have your idea stolen from you by someone you know 1 

If you’ve seen the movie The Social Network, you know the story of Tyler and Cameron Winklevoss, the Olympic rowing, identical twins who sued Mark Zuckerberg over the allegation that he stole their idea for a social networking website.

The lawsuit claimed that Zuckerberg had a verbal contract with the brothers to work on their site, ConnectU, but Zuckerberg, instead, used the Winkleveii’s (as they’re known collectively) concept to create theFacebook Facebook. Although the two parties finally reached a $65 million settlement, it came after a very lengthy and public court battle and years of lingering anger and resentment.

THE NORM, NOT THE EXCEPTION

Unfortunately, founder disputes are becoming increasingly common. Many of these arguments stem from the rapid pace at which the startup world moves. “People get together and brainstorm in a college dorm or a hackathon and come up with a business idea before they figure out who owns what,” says startup lawyer Nigel Austin. “There’s inherent ambiguity”.

Further complicating matters is the fact that these entrepreneurs are often working with friends, schoolmates or colleagues and they just assume that all parties can trust one another. As a result, they opt for a handshake deal rather than a recorded document. While handshake deals and verbal agreements can be legally binding, they rely on memories. It’s hard enough recalling exact words used in a meeting that occurred yesterday — let alone one that occurred several months or years ago.

Although 2014 is only a few months old, several high profile tech companies have seen advancements in their Facebook-esque founder lawsuits.

SNAPCHAT

Evan Spiegel and Bobby Murphy are credited with founding the photo messaging app, Snapchat, while they were students at Stanford. In February 2013, a former classmate, friend and fraternity brother of theirs, Reggie Brown, filed a lawsuit claiming that he is the third co-founder and had “an explicit oral agreement” with Spiegel and Murphy that entitles him to a one-third stake in the original company. Brown’s lawsuit centers on the idea that he came up with the idea for Snapchat, brought the concept to Spiegel, and was pushed out of the company in the summer of 2011 following a dispute.

Spiegel and Murphy have dismissed the idea that Brown is a Snapchat founder, but have testified that he did indeed play an early role in the company and that he may be due “some compensation for his contributions” (Brown currently does not have any equity in the startup). The two parties have twice tried to settle but talks failed both times. In February 2014, a US District judge sided with Brown and denied Snapchat’s motion to dismiss the case.

HUFFINGTON POST

In November 2010, political consultants Peter Daou and James Boyce filed a lawsuit claiming that Arianna Huffington and Ken Lerer violated a handshake agreement to work together on a blog news site that was that would become The Huffington Post. Daou and Boyce claim that they came up with the original concept for HuffPo and presented it to their friend, Huffington, in 2004 in the form of a business plan. Daou and Boyce have since added the charge of fraud to the case, claiming that Huffington disguised the origins of the business plans so that she could develop it with other partners, and that she purposely strung Daou and Boyce along to prevent them from developing their own site.

Arianna Huffington has dismissed the charges claiming that they are “ridiculous suppositions from two men she turned down for jobs.” Huffington has unsuccessfully tried to have the case dismissed on several occasions. In February 2014, a New York judge refused her request for a grant summary [motion] which means that the case could be headed to a jury in the very near future.

SQUARE

Square CEO Jack Dorsey is no stranger to tumultuous startup origin stories, having played a key role in the early days of Twitter.  It felt a bit like déjà vu when Washington University professor Robert Morley, Jr. filed a 2014 lawsuit against Dorsey and his co-founder James McKelvey claiming that “the publicized origin story of Square is a fabrication”, and that he is the jilted third co-founder of the mobile payment startup.

McKelvey is generally credited with having come up with the idea for Square and with reaching out to his friend, Morley, for help in designing a mobile payment device prototype. In 2010, Square sued Morley due to the fact that only Morley’s name appears on the patent paperwork for several pieces of technology used in the Square reader. Square’s 2010 lawsuit claims that McKelvey’s name should also be listed.

Morley’s 2014 suit claims that he is the sole inventor of the Square dongle. Morley’s suit also states that he was never compensated for his work and that he, Dorsey and McKelvey had an implied partnership from which he was pushed out.

HOW CAN ENTREPRENEURS AVOID FOUNDER CONFLICTS?

The best way to avoid conflict is to set clear written expectations at the beginning of a project. In most of these startup stories, there are differences in what people think their contributions are, what their roles mean and what they own. Due to the lack of formal documentation, the judges in these cases are now sorting through old emails, texts and photos in order to decide ownership.

You can protect yourself with a founder’s agreement (also known as a founder accord). In its simplest form, a founder’s agreement should explain the company idea, the founders’ positions or roles and details about their ownership stakes. You can easily create one via Shake

Although speed is often of the essence in the startup world, you can save yourself a lot of time and frustration down the road if you take a few moments early on to discuss expectations and to get those commitments in writing.

UPDATE : Since this article’s original publication, Snapchat and Huffington Post have both settled outside of court. 

  1. Urban Dictionary. March 12, 2014