Cheating rife in social games
LOS ANGELES -- Zynga Inc.'s bid to raise $1 billion through an initial public stock offering provided a lens into the dog-eat-dog world of social games.
Details in documents filed July 1 with the Securities and Exchange Commission give a glimpse of how the hottest online gaming startup has become a dominating force on the world's largest social network since its founding in 2007.
Zynga disclosed a half-million-dollar bonus last year to the company's chief counsel, Reginald Davis, for "securing a company-favorable settlement" in a major lawsuit. Although Zynga did not disclose the nature of the suit, it announced in November that it had privately settled its high-profile dispute with Walt Disney Co.'s Playdom social games unit. At the same time, Zynga itself recorded a loss of $39.3 million from paying out its own legal settlements.
Such lawsuits brought by and against Zynga's competitors hint at the viciously competitive nature of the burgeoning, $7.3 billion social games business, where titles released by one company are freely cloned by others, triggering flurries of copyright infringement disputes that keep attorneys busy.
In June, for example, Zynga filed a lawsuit against Vostu, a Brazilian game developer founded by three Harvard University graduates. The suit alleges, among other things, that Vostu's "MegaCity" game is identical to Zynga's popular "CityVille."
"The general response to the lawsuits was that it was the pot calling the teakettle black," said Billy Pidgeon, a game analyst with M2Research. "Zynga itself has been accused of ripping off other games."
A spokesman for Zynga declined to comment, citing regulatory restrictions on speaking about matters related to the company's IPO.
One lawsuit, filed last month by a Los Angeles company called SocialApps, claimed Zynga copied its "myFarm" Facebook game, which came out in November 2008, six months before Zynga released "FarmVille." The suit claims Zynga had engaged in discussions to buy SocialApps in May 2009. During those negotiations, Zynga was able to access the source code for "myFarm," the suit said. Zynga called off the negotiations shortly after it received a copy of the "myFarm" source code. Weeks later, Zynga released "FarmVille" in June 2009.
Zynga was also sued in 2009 by David Maestri, the creator of "Mob Wars," a popular social game on Facebook. He claimed that Zynga's "Mafia Wars" was a knockoff. Zynga settled the lawsuit that same year for an undisclosed amount.
"The fact is, very few of these social games are original," Pidgeon said. "That's because there's an aversion to risk and a tendency to replicate what's already out there that's doing well."