As someone interested in social networking, you undoubtedly have seen "The Social Network", the Academy Award nominated film about the founding of Facebook.   What I want to suggest is that you think of it as a way to learn about the legal dangers that threaten start-up companies.  

As an IT lawyer, I recognized many familiar themes in the Facebook story.  Often in my career, I have been approached by young would be entrepreneurs who foolishly shared their great idea and their plans with someone who developed their idea, leaving them out in the cold.  I have also met my share of unsophisticated leads of a start-up company who thought that they had retained a developer to finish their product but who neglected to get a firm commitment in writing.  And there have been times when I was asked to help out a young “partner” who trustingly agreed with his or her buddy to bring in a third party to help only to find that the new guy sided with the buddy and drove my client out of the operation.  

The film provides a glimpse about what the aggrieved parties can do about their situation.  Being a Hollywood film it is only a glimpse.  Such films always deal in broad strokes - much impression and little precision.  In the film, we meet the three would be entrepreneurs, Harvard students Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra, who ask Mark Zuckerberg, a socially challenged computer genius, to help them complete the development of their social network site called HarvardConnection.com.   Zuckerberg misleads them into believing that he will assist but instead he uses their ideas to build The Facebook. 

The film tells us that eventually the trio brought some ill defined legal action against Mark for intellectual property theft.  As a lawyer I wondered what legal action could succeed.  In law, there is no ownership of unpatented ideas.  To make matters worse there was nothing in writing but a few emails from Mark about his lack of any progress because of time pressures and class work. 

I went off to the online legal databases and discovered that in real life the trio and their company ConnectU, sued Facebook and its four founders including Mark for a litany of complaints including breach of actual or implied contract, breach of a duty of good faith and fair dealing, fraud, promissory estoppel, breach of fiduciary duty, unjust enrichment, trade secret misappropriation, unfair trade practices and, oh yes, copyright infringement.   

The film also shows Mark Zuckerberg’s “partner”, Eduardo Savarin, who was recruited by Mark to be Facebook’s first CFO, being ousted from the company by Mark and Sean Parker of Napster fame. Eduardo too brought a legal action against Mark, presumably some sort of oppression action. 

What I want to do is to give you some ideas about how you, as a would be entrepreneur, can use the film to help ensure that you avoid the mistakes made by the Winklevoss brothers and by Savarin.  You likely have reached your own conclusions.  I want to help you fine tune or perhaps replace them with some helpful insights into what can be a legal minefield.

Let’s consider each of the themes I mentioned at the outset and consider how the need for a legal action could have been avoided.

Theme 1:  Entrepreneurs with a good idea foolishly sharing that idea and their plans  

• What could have been done?  Get a signed non-disclosure agreement before the meeting.  Only after it is signed do you disclose your business plans and work done to date.  

Theme 2:  “Retaining” a developer who will finish product with no firm commitment and nothing in writing  

• What could have been done?  Have the would be employee sign an employment agreement with a clear IP assignment and non-compete or if he is to be a consultant, have him sign a consulting services agreement with a clear IP assignment and non-compete.

Theme 3:  “Partners” who trustingly bring in a third party to help and find that the new guy sides with one against the other

• What could have been done?  Savarin as a minority shareholder should have insisted on a shareholders agreement with minority rights protection.  He should also not have signed any legal agreements without independent legal advice.

So if you have not seen the film, get out to the theatre or the DVD store and watch it.  It will be more fun for them than the average legal meeting and, I suspect, more meaningful as well.

C. Ian Kyer is counsel at Fasken Martineau and the chair of the board of directors for GRAND. His blog takes readers on a tour of legal issues and perspectives as applied to the fascinating world of graphics, animation and new media in Canada.