Now, the stake Microsoft (MSFT) took in Facebook was in preferred stock, which is inherently more valuable than the common stock on which Facebook’s appraisal was based. That said, it’s doubtful that Microsoft’s shares are loaded up with enough special rights to account for the vast discrepancy between $35.90 per share and $8.88 per share. Remember, Google (GOOG) once purchased five percent of AOL for $1 billion at a company valuation of $20 billion, only to write down $726 million of that investment a few years later.

One last point worth noting here, about the terms of Facebook’s settlement with ConnectU. It was reported earlier this week that the social network had paid ConnectU $65 million to settle the case against it. According to the Associated Press, however, Facebook agreed to pay ConnectU $20 million in cash and 1,253,326 shares of common stock. At the $35.90 per share “Microsoft” valuation, that stock would be worth $45 million. But at the “Facebook” valuation, it’s worth just $11 million. So in Facebook’s view, the company agreed to a $31 million settlement, not a $65 million one.

Frankly, I’m kind of appalled that they’re threatening me after the work I’ve done for them free of charge, but after dealing with a bunch of other groups with deep pockets and good legal connections including companies like Microsoft, I can’t say I’m surprised. I try to shrug it off as a minor annoyance that whenever I do something successful, every capitalist out there wants a piece of the action.”

–Facebook CEO Mark Zuckerberg, February 2004

The inane dispute over the provenance of Facebook apparently ended in a multimillion dollar resolution. Facebook has reportedly paid the founders of ConnectU $65 million to settle a lawsuit that accused founder Mark Zuckerberg of lifting the social network’s source code and business plan when he worked for it as a programmer. A nice little financial windfall for the founders of ConnectU–brothers Cameron and Tyler Winklevoss and their colleague, Divya Narendra. Facebook certainly has money to pay to make the suit go away and a very good reason to pay it: It would be poor form to leave its quaint little creation myth in dispute.

News of the “confidential agreement” was apparently broken by ConnectU’s legal counsel, Quinn Emanuel Urquhart Oliver & Hedges, which inadvertently disclosed it in a promotion for its legal services.

“Lawyers in the heavyweight fight had expended great effort to keep the settlement secret–even going as far as persuading a judge to clear the courtroom of reporters on one occasion,” The Recorder reports. “But ConnectU’s former lawyers from Quinn Emanuel Urquhart Oliver & Hedges published the settlement amount in a firm advertisement trumpeting the firm’s prowess. ‘WON $65 million settlement against Facebook’ appears, along with dozens of other Quinn outcomes from last year, in the firm’s January business litigation newsletter.”

All parties involved declined comment on the “confidential settlement.”

In a motion hearing, ConnectU disputed Facebook’s allegations and asked U.S. Magistrate Judge Richard Seeborg to dismiss the countersuit. “Facebook makes untrue assertions,” said ConnectU attorney Scott Mosko, presumably in an attempt to frame the suit as a dissembling one, filed in retaliation over ConnectU’s lawsuit, which accuses Facebook founder Mark Zuckerberg of lifting ConnectU’s source code and business plan when he worked for the company as a programmer.

For his part, Zuckerberg has maintained that Facebook’s code was developed independently. And it may well have been. Although perhaps not by Zuckerberg. According to Aaron J. Greenspan, one of Zuckerberg’s Harvard classmates, he (not Zuckerberg) created the college social network that inspired Facebook.

Months before anyone had even heard of Facebook, Greenspan established a similar service that he called houseSYSTEM. Among its features: “Face Book,” an online system for quickly locating other students.

Simple coincidence? Not by a long shot. “Remember the Web site you signed up for at Harvard two days before we met in January 2004 called houseSYSTEM–the one I made with the Universal Face Book that predated your site by four months?” Greenspan wrote in an open letter to Zuckerberg last year. “Well, I’ve relaunched it as CommonRoom, and just like its predecessor, it has all sorts of features that might seem familiar: birthday reminders, an event calendar, RSVPs, how you know someone, photo albums, courses posters. After all, when you saw all of those features in houseSYSTEM three years ago, you called them ‘too useful,’ but I stood by them as valuable. Fortunately, even though I shut down houseSYSTEM, I can still use those same features on Facebook– and I didn’t even have to write any more code!”

This is a civil action for breach of contract, misappropriation of trade secrets, breach of fiduciary duty, unjust enrichment, intentional interference with prospective business advantage, breach of duty of good faith and fair dealing, and fraud arising out of Defendant’s… unauthorized use of Plaintiff’s source code and confidential business plans, and usurpation of business opportunity.”

Surely, it’s that last bit that chafes the plaintiffs in the case the most. Because that “business opportunity” is currently valued at anywhere from $2 billion to $6 billion. No wonder they’re demanding Facebook be shut down and its profits be turned over to them. “This lawsuit goes to the core of the assets that Facebook claims to own,” Eric Goldman, director of the High Tech Law Institute at Santa Clara University, told Condé Nast Portfolio. “The ConnectU guys are clearly ticked off, and they seem willing to spend a lot of money to pursue this.”