Snapchat's Founders Have Some Explaining To Do...

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Now that red-hot photo-sharing startup Snapchat has a valuation of $800 million and its two founders have banked $10 million apiece, a lawsuit by a guy claiming to be a third founder has become increasingly material.

To recap:

A 21 year-old named Frank Reginald Brown IV claims that Snapchat was his idea and that, back in 2011, he started the company in a dorm at Stanford along with fellow students Evan Spiegel and Robert Murphy.

Brown says he pitched the idea to Spiegel, who liked it. He says that the pair then recruited Murphy to build it. He says the three agreed to split the equity evenly. He says Spiegel became the CEO, Brown became the Chief Marketing Officer, and Murphy became the Chief Technology Officer. He says that he, Brown, helped design the product, draw the logo, pick the original name, file patents and taxes, and get the product on iTunes. He also says he moved into a house with Spiegel and Murphy for the summer after his junior year with the sole purpose of working on the app.

Then, Brown says, he got into an argument with Spiegel and Murphy. And, suddenly, they shut him out and took the app and company for themselves.

Two years later, Snapchat is one of the fastest-growing applications in history and is on course to be worth well more than a billion dollars. So there’s a lot of money on the line.

This case has startling similarities to that involving the Winklevoss twins, Mark Zuckerberg, and the founding of Facebook.

The Winklevosses maintained that Zuckerberg stole their idea at Harvard after promising to develop it for them. Zuckerberg argued–and the evidence suggested–that he merely stalled the Winklevosses while developing a somewhat different idea. Regardless, after extensive litigation, Facebook and the Winklevosses settled the Winklevoss’s claims for $65 million in private Facebook stock, which went on to be worth several multiples of that.

So this “dorm room chitchat,” as judge once described the Winklevoss claim, can eventually lead to the forking over of real money, even if no written contract is signed.

And, based on Brown’s claims, it sounds as though his involvement in the early version of Snapchat was a lot more extensive than “chitchat.”

Assuming Brown isn’t completely full of it, Spiegel and Murphy’s defence is likely to be that no contract was ever signed.

Even Brown admits that the agreement to split the company evenly was “oral.”  Oral contracts generally aren’t binding. So even if everything Brown says is true, he might have a tough time winning his case.

But if what Brown says is true, the filing of this lawsuit will be only the beginning. Next will come document discovery, in which documents like emails will reviewed and produced. And these documents may support Brown’s claims.

Also, even if an verbal agreement does not constitute a legally binding contract, that doesn’t mean that Spiegel and Murphy didn’t shaft Brown. 

As Brown tells it, for many months, he was a member of a three-person founder team that was working hard to develop his idea.

And then, one day, as Brown tells it, Spiegel and Murphy slammed the door in his face.

So Spiegel and Murphy, have some explaining to do.

When Brown’s lawsuit first appeared, Spiegel and Murphy responded with a quote that sounds as if it was lifted straight off of howtosoundlikealawyer.com:

We are aware of the allegations, believe them to be utterly devoid of merit, and will vigorously defend ourselves against this frivolous suit.

Brown’s claims may well be “frivolous,” but declaring them so isn’t a persuasive defence.

What would be persuasive defence would be a simple explanation of Spiegel and Murphy’s side of the story.

Is Brown just making stuff up? Or is what Brown says basically true and did Spiegel and Murphy take advantage of his naivete and shaft him? Or is the truth somewhere in the middle?

We’re looking forward to hearing Spiegel and Murphy’s side of the story.

The guy on the left is Frank Reginald Brown, IV. He says that, shortly after this picture was taken, the guys on the right--Bobby Murphy and Evan Spiegel--stole his idea and threw him out of his company.

Specifically, Mr. Brown says that Snapchat was his idea.

Brown says that, after coming up with the idea, he pitched it to fellow Stanford student Evan Spiegel, a friend of Brown's in Kimball Hall.

Brown says he and Spiegel approached a third student, a friend of Spiegel's, Bobby Murphy, to build the product. Murphy had already worked with Spiegel on another failed idea.

He registered Twitter and Facebook handles.

The school year came to an end, so the three decided to work on the app over the summer.

They went to Spiegel's dad's house in Los Angeles.

While Spiegel and Murphy worked on the app (presumably), Brown did all the boring stuff--writing legal documents, FAQs, filing an iTunes application and tax info, etc.

Brown says he also made specific contributions to the app.

Brown also drafted a patent application.

Brown wasn't paid for any of this work, which he cites as evidence that he was an equity partner.

Brown says that Spiegel and Murphy frequently acknowledged that Brown was a partner in the venture.

For example, Brown says, the three lived together and celebrated together.

They celebrated the app's launch, for example. Here they are, partying in front of a cake with the logo on it.

At the end of the summer, Brown says, the three took a break. Brown went home to South Carolina, and Murphy went home to Northern California.

But they kept working! Brown finished the patent application and filed it. Spiegel and Murphy were apparently happy about that.

And, naturally, the three kept each other in the loop (which should make for good email reading, if this case ever goes to discovery).

Alas... just as Brown was getting ready to go back to Spiegel's dad's house in Los Angeles, disaster struck. The three got in a telephone fight. Spiegel hung up on Brown.

Over the next few days, Spiegel and Murphy systematically shut Brown out.

They changed the name of the app from Picaboo to Snapchat.

They sent Brown a threatening letter telling him to shut his pie hole.

And so, Brown says, he had no choice but to sue them.

And now there's a lot of money on the line! So we look forward to hearing Spiegel and Murphy's side of the story...

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