Facebook Inc.'s settlement of claims that its founder Mark Zuckerberg stole the idea for the social- networking company should be undone, former college classmates of Zuckerberg told an appeals court today. The ex-Harvard University classmates, twins Cameron and Tyler Winklevoss, asked a three-judge panel of the U.S. Court of Appeals in San Francisco to void the 2008 agreement because closely held Facebook, based in Palo Alto, California, didn't disclose an accurate valuation of its shares before agreeing to pay them $65 million in stock and cash. In the same year, a lower court ruled the accord was binding.

The settlement was intended to resolve four years of litigation between the Winklevosses and Zuckerberg, who the twins hired to help build dating website ConnectU Inc. while they were students at Cambridge, Massachusetts-based Harvard in 2003. The Winklevosses and a partner, Divya Narendra, accused Zuckerberg in a lawsuit of stealing their idea and delaying the ConnectU project while secretly building Facebook.

An accurate share price "was not disclosed to the founders until after they signed the term sheet" outlining the conditions of the accord, Jerome Falk, a lawyer representing the ConnectU founders, argued today at an appeals court hearing in a case dramatized in the 2010 film "The Social Network."

Facebook countersuit

In a separate suit, Facebook sued the Winklevosses, claiming ConnectU hacked into the Facebook website to "spam" millions of users in an attempt to lure them to the rival ConnectU site. The Winklevosses faced potential liability of $900 million in that case, according to a Facebook filing in the appeals court.

Facebook says the settlement should be enforced and the appeal thrown out because the Winklevosses suffer from a "bout of settlers' remorse," and are now asking the court "to relieve them of the deal they struck to plunge back into scorched-earth litigation," according to a company court filing.

In February 2008, the two sides arrived at a settlement through mediation that would pay ConnectU's founders $20 million in cash and $45 million in stock, or 1.25 million shares based on a stock price of $35.90, Falk said last week in an interview. Falk is a partner at Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco.

The share price seemed fair and familiar, Falk said, based on Facebook's announcement five months earlier that Microsoft Corp.'s $240 million investment in the company set its value at $15 billion.

$8.88 a share

Within a couple of months of signing the deal, ConnectU's lawyers learned that Facebook had accepted an expert's finding that the strike price for employee stock options was $8.88 a share, Falk said. Based on that stock price, the Winklevosses should have received four times as many shares as they got, according to Falk.

Falk said the 2008 settlement is now worth $100 million more than its original amount after Goldman Sachs Group Inc. invested $450 million in the social networking site, boosting the company's valuation to $50 billion. The Goldman Sachs investment was first reported this month.

Facebook argues in court documents that the Winklevosses had "ample conflicting valuations" of the company's shares before the mediation started. If the Winklevosses and Narendra truly believed that the company was withholding the most accurate valuation of its private stock, they could have found out through mediation or discovery, a court-supervised exchange of information, the company said.

The judges hearing today's appeal are Alex Kozinski, J. Clifford Wallace and Barry Silverman.

The case is The Facebook Inc. and Mark Zuckerberg v. ConnectU Inc., 08-16745, U.S. Court of Appeals for the Ninth Circuit (San Francisco).