IP in Movies: The Social Network (2010)

Every film is the result of the society that produced it.

Jean-Luc GodardSight and Sound, Summer 1968

David Fincher · 2010 · Screenplay by Aaron Sorkin, from Ben Mezrich’s The Accidental Billionaires

The film

The Social Network reached cinemas in October 2010, six years after the events it describes and while Facebook was still a private company. David Denby called it a picture “absolutely emblematic of its time and place” (“Influence People”, The New Yorker, 4 October 2010), which is as good a reason as any to open this series with it.

The story it tells is a theft. Three Harvard students — Cameron and Tyler Winklevoss and Divya Narendra — ask Mark Zuckerberg to finish the code for a social network they call Harvard Connection. He stalls, launches thefacebook.com, and they spend the next seven years trying to take it back. Aaron Sorkin’s screenplay rests on a single grievance, stated in the film and repeated in almost every account of it since: they had the idea, and he took it.

That grievance is what makes the case worth a lawyer’s attention, because an idea is the one thing intellectual property does not protect.

“We have an idea we want to talk to you about”

21:32 – 24:26

The Winklevoss brothers and their partner Divya come to Mark and unfold the idea of a social network called “Harvard Connection”. They describe it by its functions: users can “create [their] own page. Interests, bio, friends, pics, etc. And then people can go online, see your bio, request to be your…” The next word — was it “friend”? — is cut off from the dialogue. We also learn that the trio has been working on the project “for a while”, and that two programmers have already put some effort into it, which suggests there are lines of code somewhere.

“We have an idea we want to talk to you about” — The Social Network (David Fincher, 2010). Directed by David Fincher; produced by Scott Rudin, Dana Brunetti, Michael De Luca and Ceán Chaffin; screenplay by Aaron Sorkin.

What is disclosed in that room is a specification, not a work: pages, interests, biographies, photographs, and a request to be someone’s — the word the film withholds — friend. It is a description of a thing to be built.

Section 102(b) of the Copyright Act disposes of it in a sentence: “In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” Article 9(2) of the TRIPS Agreement says the same thing to the rest of the world: “Copyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.”

The principle is older than either text. In Baker v. Selden, 101 U.S. 99 (1879), the Supreme Court held that copyright in a book explaining a system of double-entry bookkeeping gave its author no monopoly over the system. Justice Bradley: “The description of the art in a book, though entitled to the benefit of copyright, lays no foundation for an exclusive claim to the art itself.” Describing a thing and owning it are separate acts.

And where an idea can be expressed in only a handful of ways, even the expression gives way. The classic statement comes from the First Circuit — the circuit in which the Winklevosses would sue — in Morrissey v. Procter & Gamble Co., 379 F.2d 675 (1st Cir. 1967): to allow copyright in such a case “would mean that a party or parties, by copyrighting a mere handful of forms, could exhaust all possibilities of future use of the substance”.

Zuckerberg had made the same point himself, to The Harvard Crimson, in May 2004, long before any of it reached a court: “There aren’t very many new ideas floating around… The facebook isn’t even a very novel idea.”

What was actually pleaded

The film keeps the claim vague. So, for a while, did the pleadings.

The action was filed on 2 September 2004 in the District of Massachusetts by ConnectU LLC, on diversity of citizenship, and it contained no copyright count at all. It pleaded seven state-law causes: breach of contract, misappropriation of trade secrets, breach of fiduciary duty, unjust enrichment, intentional interference with prospective business advantage, breach of the duty of good faith and fair dealing, and fraud. Senior Circuit Judge Selya would later describe it as “a gallimaufry of state-law claims” (ConnectU LLC v. Zuckerberg, 522 F.3d 82 (1st Cir. 2008)). A federal copyright claim — aimed at the source code, not at the idea — was added by amendment on 28 October 2004.

There was no written non-disclosure agreement. None appears in the reported decisions or in the contemporaneous reporting. What the plaintiffs had instead was conduct: meetings, fifty-two emails, and an alleged understanding that Zuckerberg would finish the code in exchange for a stake.

At a hearing on 25 July 2007, Judge Douglas Woodlock reduced the contract theory to eight words: “Dorm room chit-chat does not make a contract.” He was reported the same day as calling the case “gossamer thin on the question of contract”.

The cease-and-desist letter

47:30 – 48:48

As Eduardo and Mark are having a beer and discussing how to make money, Eduardo finds a cease-and-desist letter on the chimneypiece, sent by counsel for Cameron, Tyler and Divya. Its wording — “to steal an idea”, “intellectual property theft” — is plainly meant to make Mark shut thefacebook.com down. The exchange that follows is the best in the film: “a guy who builds a nice chair doesn’t owe money to everyone who ever has built a chair, okay? They came to me with an idea, I had a better one.” He adds that he used none of their code.

The cease-and-desist letter — The Social Network (David Fincher, 2010). Directed by David Fincher; produced by Scott Rudin, Dana Brunetti, Michael De Luca and Ceán Chaffin; screenplay by Aaron Sorkin.

The chair line is not merely a good retort. It is the doctrine of scenes à faire, which, as Robert P. Merges puts it, “protects against private appropriation of broad plot elements or standards motifs that have come into common usage” (Justifying Intellectual Property, Harvard University Press, 2011). Nobody owns the chair.

The letter itself is the most legally honest object in the film, precisely because it is not a legal instrument. A cease-and-desist letter invokes no tribunal, creates no record and binds no one; its entire force is the recipient’s estimate of what will happen if he ignores it. Zuckerberg’s estimate was that nothing would. He was right for three years.

That is not a marginal phenomenon. As Leah Chan Grinvald observes, “only less than three percent of all disputes end up in court, and a paltry one percent of all filed lawsuits end with a decision on the merits… most disputes start and end with a cease-and-desist letter” (Policing the Cease-and-Desist Letter, 49 U.S.F. L. Rev. 409 (2015)). Most of intellectual property is practised in letters no judge ever reads.

There is now a risk in sending one that did not exist in 2004. Since MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), a sufficiently pointed demand can itself give the recipient standing to sue first, for a declaration that he infringes nothing. The letter can hand the other side the forum.

The claims were never decided

Here is the part that no account of the film mentions.

On 2 March 2007 the District of Massachusetts dismissed the entire action for want of subject-matter jurisdiction. ConnectU LLC had no members on the day it filed; a memberless Delaware limited liability company is stateless for diversity purposes; complete diversity therefore failed. Nothing to do with ideas, code or contracts — a defect in the citizenship of a party.

The First Circuit reversed on 3 April 2008, holding that the amended complaint’s federal copyright count governed the jurisdictional question. By then it no longer mattered: the parties had settled six weeks earlier.

So the trade-secret count filed in 2004, and the copyright count added that October, were never adjudicated by any court. The intellectual property in this intellectual property case was never tested.

What ended it was a page and a third of handwriting

The parties mediated on 22 February 2008 before Antonio Piazza and, in the early hours of the 23rd, signed a handwritten “Term Sheet & Settlement Agreement” running to seven paragraphs over one and a third pages.

The figures appear in no judgment. They surfaced in February 2009, first through a law firm’s own advertisement and then when the Associated Press defeated the redactions on a sealed filing: twenty million dollars in cash and 1,253,326 shares of common stock. At $35.90 a share — the price implied by Microsoft’s 2007 investment — that is the sixty-five million dollars usually reported. On Facebook’s own internal valuation of $8.88, it is about thirty-one million. That gap became the endgame.

The Winklevosses sought rescission, arguing that Facebook had committed securities fraud under Rule 10b-5 by letting them work from the higher figure. Chief Judge Kozinski, for the Ninth Circuit, accepted the premise — “If Facebook violated Rule 10b-5, the Winklevosses would be entitled to rescission of the Settlement Agreement” — and then took both legs out from under it. The mediation confidentiality agreement barred the proof: “This agreement precludes the Winklevosses from introducing in support of their securities claims any evidence of what Facebook said, or did not say, during the mediation.” And their own sophistication barred the sympathy:

The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world’s fastest-growing companies… They brought half-a-dozen lawyers to the mediation. Howard Winklevoss — father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation — also participated. A party seeking to rescind a settlement agreement by claiming a Rule 10b-5 violation under these circumstances faces a steep uphill battle.

On the enforceability of the handwritten sheet the court was brisk: “This is not a very demanding test, and the Settlement Agreement easily passes it: The parties agreed that Facebook would swallow up ConnectU, the Winklevosses would get cash and a small piece of Facebook, and both sides would stop fighting and get on with their lives.”

And then the closing paragraph, quoted ever since:

The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace… At some point, litigation must come to an end. That point has now been reached.

Rehearing en banc was refused on 16 May 2011, with the unusual direction that no further petition might be filed. The Winklevosses announced a petition to the Supreme Court and abandoned it on 22 June 2011. There was never a denial of certiorari; the case simply stopped.

Notice what the decisive opinion is about. Not authorship, not originality, not code. It decides whether a page and a third of handwriting produced in an afternoon is definite enough to be a contract in California. Seven years of intellectual property litigation were extinguished by the law of offer and acceptance.

“There’s not a lot of money in free music…”

58:04 – 1:00:15

Sean Parker joined Facebook in 2004 as its founding president. In this excerpt he is talking to a student from Stanford. Having revealed that he founded Napster — described here as “an Internet company that let folks download and share music for free” — he has to concede that “there’s not a lot of money in free music, even less when you’re being sued by everyone who’s ever been to the Grammys”. Later, he comes across thefacebook.com.

Sean Parker and Napster — The Social Network (David Fincher, 2010). Directed by David Fincher; produced by Scott Rudin, Dana Brunetti, Michael De Luca and Ceán Chaffin; screenplay by Aaron Sorkin.

The suit he alludes to is A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001), decided on 12 February 2001, and two parts of it still govern.

On contributory infringement the court fixed the knowledge standard: “If a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement.” Note what it does not say. The court refused to infer knowledge from architecture — it would “not impute the requisite level of knowledge to Napster merely because peer-to-peer file sharing technology may be used to infringe” — and departed from the district court on the Sony question, accepting that the system was capable of substantial non-infringing use. Napster lost on what it actually knew and failed to remove, not on what it was.

On vicarious liability the test was supervision plus financial interest, the infringing material acting as a “draw”: “Napster’s failure to police the system’s ‘premises’, combined with a showing that Napster financially benefits from the continuing availability of infringing files on its system, leads to the imposition of vicarious liability.”

One correction the film invites. When Parker enters this story, in 2003 and 2004, Napster was not embattled — it was gone. The network shut on 11 July 2001, the company filed for Chapter 11 in June 2002, a bankruptcy judge ordered liquidation that September, and the brand was sold at auction and relaunched as a paid service. The humiliation Parker had freshly suffered was not Napster but Plaxo, from which he was forced out in 2004. The film compresses two defeats into a single aura of glamorous ruin.

What does protect an idea

If not copyright, then what? The honest answer, in 2004, was: very little — and less in Massachusetts than almost anywhere.

There was no federal civil trade-secret claim at all. The Defend Trade Secrets Act was enacted on 11 May 2016 and reaches only acts occurring on or after that date. Massachusetts, for its part, had not adopted the Uniform Trade Secrets Act — it would be the forty-ninth state to do so, in October 2018 — and its common law protected information in continuous use in a business, an awkward fit for a student site that had never launched. California, where the fight later moved, was more generous: its statute reaches information of “actual or potential” economic value.

What was left was contract, and there is a case precisely on the point. In Desny v. Wilder, 46 Cal. 2d 715 (1956), a writer telephoned Billy Wilder’s office, read a synopsis to the secretary and said he must be paid if it were used; Paramount then released a film built on the same story. The Supreme Court of California held that an idea, though neither property nor copyrightable, can be the consideration for an implied-in-fact contract — provided the condition of payment is communicated before the disclosure. Justice Schauer wrote the sentence that governs this whole genre of dispute:

The idea man who blurts out his idea without having first made his bargain has no one but himself to blame for the loss of his bargaining power.

That is the Winklevoss case in a line, delivered fifty-one years before Judge Woodlock’s. And Desny still works: in Montz v. Pilgrim Films & Television, Inc., 649 F.3d 975 (9th Cir. 2011) (en banc), decided three weeks after Kozinski’s opinion, the Ninth Circuit confirmed that the promise to pay is the “extra element” which saves such claims from copyright preemption.

Coda

The film asks who had the idea, and answers as drama must, with a moral verdict. The law never asks that question. It asks whether anyone wrote anything down and, if not, whether the conduct was clear enough to be read as a bargain. The Winklevosses had a meeting, an email trail and a conviction. What they did not have was a page of paper.

What finally settled the ownership of the most valuable social network of its generation was, in the end, exactly that: one and a third pages of handwriting, drafted in an afternoon.

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