How Peter Thiel's Gawker Lawsuit Could Trip Up Facebook

File this one under "T" for The Law of Unintended Consequences: Tech tycoon Peter Thiel is facing a blistering storm of criticism following news that he secretly funded entertainer Hulk Hogan's crippling lawsuit against Gawker Media. The revelations have begun to shatter the billionaire Libertarian's carefully crafted "golden touch" image, and calls are rising for Facebook to oust Thiel for violating corporate ethics.

The ripple effect could undermine Facebook's new push to transition from its social niche into a full-blown global media powerhouse. Let me explain...

The Gawker lawsuit

In the latest development, Gawker filed for bankruptcy on Friday and will be auctioned off, so it looks like Thiel got everything he wished for. On closer examination, though, perhaps we should file this one under "B" for Be Careful What You Wish For.

For those of you new to the topic, last month Peter Thiel, a Paypal co-founder and active Donald Trump supporter, admitted that he secretly put up $10 million to cover legal fees for Hulk Hogan's invasion-of-privacy lawsuit against Gawker.

That part of the story goes back to 2013, after the multi-talented entertainer (real name: Terry Bollea) sued Gawker in federal court over its publication of a sex tape excerpt. A long essay about the public's obsession with sex tapes accompanied the excerpt, and the case was thrown out on First Amendment grounds.

However, Thiel's largess enabled Hogan's attorneys to revive the case on the friendly terrain of Florida state courts, resulting in a catastrophic $140 million settlement in Hogan's favor earlier this year.

Peter Thiel, white knight...

After the news broke that Thiel secretly bankrolled the Gawker case -- with the obvious aim of bringing down the popular online publishing network -- he advanced a kind of corporate social responsibility defense for his choice of where to spend his pocket change.

In a statement to CNN Money published on May 26, Thiel portrayed himself as a champion of the little guy, fighting for privacy rights against media bullies:

"I am proud to have supported Terry Bollea in his successful fight against a bully's gross violation of privacy," Thiel said in a statement to CNNMoney.

"Gawker, the defendant, built its business on humiliating people for sport," he said. "They routinely relied on an assumption that victims would be too intimidated or disgusted to even attempt redress for clear wrongs. Freedom of the press does not mean freedom to publish sex tapes without consent. I don't think anybody but Gawker would argue otherwise."

... Or, not

In support of the White Knight defense, it's worth noting that coverage of the Thiel vs. Gawker story often brings up a very brief, but very notorious article that appeared in Gawker's now-defunct Valleywag in 2007. The article featured Thiel's sexual preference throughout.

Thiel and others have characterized the article as an outing, a cruel intrusive invasion of privacy by a callous, grossly irresponsible online publication. That forms the root of his motivation to destroy Gawker.

However, more recent coverage indicates that Thiel's defense is a screen for the only other motivation that could top sex.

If you guessed money, run right out and buy yourself a cigar. Thiel's story of personal victimization is beginning to wither, and it is being replaced by the story of a powerful billionaire whose financial track record is not as golden as his public image suggests.

Thiel outed, only it's not what you think

A critical part of that story can be told by the purported cause of Thiel's victim status, Owen Thomas. Currently the business editor of The San Francisco Chronicle, Thomas wrote the 2007 Gawker article that supposedly launched Thiel's self-defined quest for justice.

In an article published last week by the Chronicle, Thomas pinpoints the real root of Thiel's vengeance: Gawker's frequent (and frequently not terribly flattering) coverage of Thiel's business activities. The cumulative effect was to undermine Thiel's carefully crafted "Midas myth," at least to the relatively small, insidery readership of Valleywag:

...Likewise our reporting from deep inside Facebook, where Thiel wielded great influence on a small board of directors, and whose fluctuating valuation as a private company likewise drove the perception of Thiel’s success.

Thiel made some good moves — viz. Facebook — and some bad — Clarium’s assets shrank by 90 percent and Thiel quietly moved away from the hedge fund business. I’m sure he would have rather seen less coverage of his failures.

According to Thomas, his 2007 reference to Thiel's sexuality did not cause a particularly dramatic uproar at the time, partly because Thiel was not in "any kind of closet." In addition, after the article appeared a Thiel representative assured him that he had "no issue" with the article.

More to the point, the reference was not gratuitous. It was the central point for a (very) brief thought piece in which Thomas vigorously cheered Thiel's success as an openly gay venture capitalist in a field dominated by the"clubby ranks" of "straight, white males."

Except for the somewhat flammable headline ("Peter Thiel is Totally Gay, People"), Thomas claims that he had no salacious intent:

...In a post where I hailed Thiel, on the basis of his timely and savvy investment in Facebook, as “the smartest venture capitalist in the world,” I asked whether being gay formed part of his identity as an outsider who questioned conventional thinking in business and society...

Such an article in 1957 would have killed Thiel's career. In 2007, not so much. When you read the entire 2007 piece (here's that link again), it is difficult to see how Thomas's intended cheerleading could provide the sole motivator for Thiel's Gawker lawsuit(s).

Follow the money

Our friends over at Forbes Magazine applied Occam's razor to that question, and came up with more evidence that the root of Thiel's motivation is money, not sex (Occam's razor is a philosophical concept that seeks an explanation with the fewest assumptions).

On June 6, Forbes published an article confirming that the Hogan case was just one element in Thiel's efforts to topple Gawker.

The piece, titled "Behind Peter Thiel's Plan To Destroy Gawker," unpacks Thiel's relationship with an attorney named Harder Mirell, who appears have made a career out of suing Gawker:

…Forbes has found at least two other cases–Gawker is currently a defendant in at least a dozen lawsuits–in which Harder Mirell has worked quietly behind the scenes. One involves soliciting plaintiffs in cases that, contrary to Thiel’s claims that he’s defending those who have been wronged by the site, have nothing to do with its journalism.

Do read the full piece for many more details, in which the writers carefully dissect Thiel's "white knight" claims of acting on behalf of the little guy against the media.

How not to act on behalf of the little guy

Ironically, Thiel's professed concern for the little guy is already having the opposite consequence.

On June 10, Gawker announced that it will be filing for Chapter 11 bankruptcy. The top interested buyer, Ziff Davis (now part of J2Global), is already reported to be interested in shutting down at least part of the Gawker network, leaving only the tech-oriented sites Gizmodo, Lifehacker and Kotaku.

In other words, more than a few people are going to lose their jobs, and virtually none of them had anything to do with the 2007 Valleywag article.

The little guy strikes back -- at Facebook

That finally brings us around to the Facebook connection.

Facebook is still dealing with fallout from recent accusations that it suppressed news from conservative sites, which sparked an avalanche of blowback from the right side of the political spectrum. Now the company is taking heat from the left side, spearheaded by the Writers Guild of America, East.

As cited by Guild member Lauren C. Williams in a June 10 article, the Writers Guild has launched a petition calling for Facebook to take action against Thiel:

We call upon Facebook to remove Thiel from its board of directors. A person committed to silencing journalism he doesn’t like should not sit on the board of a company that serves as the portal to digital news for tens of millions of people.

Williams argues that Facebook has begun to transition into a media organization, and that in order to stay competitive, its board members will have to balance their "personal beliefs" against public support.

And the big guys pile on...

The Guild petition follows a torrent of criticism from leading executives in the tech industry and related fields, and especially from the media industry.

The legacy publication Fortune Magazine was one of the first to provide a platform for the argument that Thiel should resign his position at Facebook. On May 31, it published an op-ed by Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance, under the straightforward title, "Why Facebook Should Ask Peter Thiel to Resign from the Board."

Here is the nut of Bloxham's argument:

...when Thiel decided to fund the lawsuits, as morally challenged as many believe those actions to be, he had a duty to inform Facebook’s board that he had a conflict and would need to step down.

That’s because Gawker is a Facebook customer and supplier — and as it turns out, a vocal brand ambassador for the social media company as well...

Do read the full piece for a detailed explanation of the corporate social responsibility issues involved in the case.

This is not the first time that Thiel has been accused of acting in conflict with his Facebook board responsibilities, and doesn't appear that his position is actually threatened -- yet -- but the timing of the Gawker settlement, and the resulting bankruptcy, is not the best look for a company seeking to establish itself in the field of journalism.

Expect to hear less about Thiel's personal life and more about his CSR profile in the weeks to come.

Image credit: Max Warren, Flickr