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VCs, Epinions workers settle high-profile legal dispute

PALO ALTO, Calif. (Dow Jones/AP) - Fifty-one former employees of the startup Epinions Inc. settled their legal dispute with three prominent venture-capital firms and eBay Inc. in a case that could serve as a warning to the venture community.

The settlement evolved in the months after the two sides entered mediation in September and was formally agreed to last week.

It calls for a undisclosed amount to be paid to the 51 founders and employees of Epinions, which in April 2003 merged with DealTime Ltd. to become Shopping.com Ltd. and in August 2005 became part of eBay.

The employees filed suit in January 2005 claiming the venture firms and a former Epinions official misled them about the financial health of the company. The employees say they were convinced to give up their stock prior to the DealTime merger and before a lucrative initial public offering. Three venture capitalists listed in the suit - J. William Gurley of Benchmark Capital, John Johnston of August Capital and Thomas Geiselmann of BV Capital Management LLC - had invested in Epinions and were board members.

Benchmark and August declined to comment on the settlement. Geiselmann didn't return a call seeking comment.

eBay released a brief statement, saying "Defendants and plaintiffs are pleased that their disputes have been fully and finally resolved, and eBay acknowledges the role of Epinion's employees and founders in making the company a success."

"Our clients are very pleased with the resolution of the case," said Stephen Morrissey, an attorney representing the employees.

The settlement is likely to have a lasting influence on the venture community. In past decades, venture capitalists have considered themselves free from founder suits. After all, which entrepreneur would sue a firm that might fund his or her next company?

"It's not true anymore," says Bernard Vogel III, a corporate attorney at the Silicon Valley Law Group. "I think there is going to be more litigation against VCs." The contentious private company re-financings in the years after the dot-com collapse could be a source of the disputes, Vogel says.

The parties in the case filed a request in federal district court on Tuesday to transfer the matter back to California state court, where it is expected to be dismissed.

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