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Facebook unrestrained amid NY ownership lawsuit


Facebook CEO Mark Zuckerberg speaks during a session at the Cannes Lions 2010 International Advertising Festival in Cannes, June 23, 2010. REUTERS/Sebastien Nogier
Facebook CEO Mark Zuckerberg speaks during a session at the Cannes Lions 2010 International Advertising Festival in Cannes, June 23, 2010. REUTERS/Sebastien Nogier

By Grant McCool

NEW YORK (Reuters) - Facebook may continue business as usual while it fights a New York man's claim he has a contract with founder Mark Zuckerberg that entitles him to 84 percent ownership of the world's leading social networking site, a U.S. court heard on Tuesday.

Paul Ceglia of Wellsville, New York, sued Zuckerberg and Facebook Inc last month claiming a 2003 contract with Zuckerberg to develop and design a website now entitled him to a majority stake in the privately-held company.

A New York State judge in Allegany County put a temporary restraining order on company asset transfers, but that order was suspended on June 30 by Judge Richard Arcara of federal court in Buffalo, New York.

Arcara decided at a hearing on Tuesday that his ruling should remain in place, Facebook and a lawyer for Ceglia said.

"We have reached an agreement with respect to the progress of the next stage of the litigation," said Ceglia's lawyer, Terrence Connors.

In a statement, the Palo Alto, California-based company said: "We are pleased that the court's decision to stay the temporary restraining order remains in place and will continue to fight this frivolous claim."

The purported contract was dated April 2003 and ended in February 2004, according to Ceglia's complaint, which had a two-page "'Work for Hire' Contract" attached.

"He has contract. The contract is clean and clear," Connors said by telephone after the hearing.

Connors said he argued in court that Zuckerberg had signed the contract.

"The judge asked the question of the defense and they said they were looking into it," Connors said. "I suspect that, if their client did not sign it, they would have made that clear."

In court documents, lawyers for Zuckerberg and Facebook wrote that Ceglia "sat on his allowed rights for over six years" and should not be permitted "to say that now, all of a sudden, he requires immediate relief."

The company, which has nearly 500 million users and 1,000 employees, argued the "purported contract itself is wrought with irregularities, inconsistencies and undefined terms."

Zuckerberg was a freshman at Harvard University in Massachusetts at the time of the purported contract.

Facebook's court papers noted that last December a state prosecutor accused a wood-pellet fuel company that Ceglia owned with his wife of taking $200,000 from customers and failing to deliver products or refunds.

The company is also defending a claim in federal court in Delaware that the most basic functions of its website infringe a patent held by a little-known company [ID:nN16102757].

Facebook ranks among the Web's most popular sites, alongside Google Inc, Yahoo Inc and Microsoft Corp. Facebook is also one of the most closely watched Web companies by investors eager for a blockbuster initial public offering.

The cases are Paul Ceglia v Zuckerberg & Facebook, New York State Supreme Court, Allegany County, No. 038798/2010 and Ceglia v Zuckerberg et al, U.S. District Court for the Western District of New York, No. 10-00569.

(Reporting by Grant McCool; editing by Andre Grenon)

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