Social Gaming Is Battleground over 'Fast Following'

A year ago, Playdom Inc. co-founder Dan Yue was depressed that his social gaming company, which says it has 38 million monthly users on platforms like Facebook and MySpace, hadn't launched a new game in almost six months. Following competitor Zynga Game Networks Inc. wasn't fun either, he wrote in an e-mail exchange with his lead game designer. “I run into Zynga folks at bars every weekend and have to deal with them calling me out for cloning them,” Yue wrote. “It sucks. But it sucks even more missing quarterly earning projections.”

Zynga's lawyers are now using that message, among other evidence, to cast Playdom as a desperate competitor that stooped to unfair and illegal tactics ' including trade secret theft. Its first amended complaint, filed in April, names eight current and former Playdom employees, alleging they stole key documents from Zynga on their way out the door to new jobs at Playdom. Zynga Game v. Playdom, C09-2748.

Copycatting Commonplace

It's an extreme, but by no means isolated, example of litigation in the social gaming sector, which features young companies vying for position in a lucrative and fast-growing market where copycat games and employee poaching are commonplace. Social gaming is expected to contribute more than $800 million this year to the $1.6 billion virtual goods market, according to a recent report by Inside Virtual Goods. Legal questions continue to surround the sector's ubiquitous practice of “fast following” ' quickly copying competitors' successful gaming concepts.

“There certainly has been a lot of litigation in the area,” says Robert Taylor, managing partner of the Palo Alto, CA, office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “Some of it stems from [the fact that] exactly what people are precluded from copying is not 100% clear.” Taylor represented Psycho Monkey, creator of a game called Mob Wars, in skirmishes over who owned the mob game idea and whether it was ripped off by Zynga's Mafia Wars game.

First, Psycho Monkey founder David Maestri was sued by his former employer, SGN, which contended it owned the Mob Wars idea because Maestri was working for SGN when he developed the prototype. That suit ended in a confidential settlement with SGN recognizing Maestri and Psycho Monkey as the sole owners of the Mob Wars game. Psycho Monkey then sued both Zynga and Playdom, saying their games copied Mob Wars. Those suits settled, too. “The idea that you can have a simulated farm ' it's probably not protectable,” says James Chadwick, an IP lawyer and partner in the Silicon Valley office of Sheppard, Mullin, Richter & Hampton. “There's a real question about whether or not you can force, on the basis of an intellectual property claim, your right to your exclusive use [of that idea].”

The facts alleged in Zynga's suit against Playdom are a trade-secret lawyers' nightmare. One game designer Playdom tried to hire worked on “homework assignments” for Playdom's competitor, but warned co-founder Yue to use the information confidentially, because, he wrote, “it could have wonky legal repercussions.” Yue, before interviewing a Zynga employee for a job in 2008, said in an another e-mail cited in court filings: “Poaching from Zynga. I like it. Though I feel like we might be signing our own death warrant.”

Young Industry

“These are young companies with young entrepreneurs without a lot of experience dotting I's and crossing T's in terms of protection of intellectual property,” Chadwick says.

Zynga seemed to be most upset about the alleged theft of its “Zynga Playbook,” which it described as “literally the recipe book that contains Zynga's 'secret sauce,'” a collection of nonpublic “concept, techniques, know-how and best practices for developing successful and distinctive social games.” And Zynga has tried to make it clear in court filings that Playdom is not just a small start-up it's beating up on. It pointed out, for example, that Playdom is said to have upwards of $50 million in annual revenues and continues to attract financing from third-party investors.

“Zynga's strategy in this and the plethora of other actions it has filed since its founding is to use litigation as a weapon against competitors,” says Carolyn Hoecker Luedtke, a partner at Munger, Tolles & Olson who represents Playdom. “For example, Zynga claims it owns commonly known aspects of social gaming such as avatar customization, leveling up and harvesting.”

Zynga is represented by Bradford Newman, a partner in the Silicon Valley office of Paul, Hastings, Janofsky & Walker who has long handled Yahoo Inc.'s trade secret cases. Newman referred a request for comment to Zynga's new general counsel, Reggie Davis, who came to Zynga from Yahoo last year. Davis wasn't available to comment.

At a March hearing in the Playdom litigation, District Judge Lucy Koh said Playdom had induced Zynga employees to breach their employee confidential information agreements “by begging them to do ripoffs of their competitors,” according to a recent brief Newman filed. Koh described the solicitations as “perhaps one of the most egregious I've seen.” Koh ordered Playdom not to use or destroy Zynga trade secrets, or ask about game improvements during job interviews of Zynga employees.

“These are the early days for the social networking game space,” Chadwick says. “As this sector matures ' I think what you'll see is a little bit less of people bumping up against each other, but it will be more serious when they do.”

A year ago, Playdom Inc. co-founder Dan Yue was depressed that his social gaming company, which says it has 38 million monthly users on platforms like Facebook and MySpace, hadn't launched a new game in almost six months. Following competitor Zynga Game Networks Inc. wasn't fun either, he wrote in an e-mail exchange with his lead game designer. “I run into Zynga folks at bars every weekend and have to deal with them calling me out for cloning them,” Yue wrote. “It sucks. But it sucks even more missing quarterly earning projections.”

Zynga's lawyers are now using that message, among other evidence, to cast Playdom as a desperate competitor that stooped to unfair and illegal tactics ' including trade secret theft. Its first amended complaint, filed in April, names eight current and former Playdom employees, alleging they stole key documents from Zynga on their way out the door to new jobs at Playdom. Zynga Game v. Playdom, C09-2748.

Copycatting Commonplace

It's an extreme, but by no means isolated, example of litigation in the social gaming sector, which features young companies vying for position in a lucrative and fast-growing market where copycat games and employee poaching are commonplace. Social gaming is expected to contribute more than $800 million this year to the $1.6 billion virtual goods market, according to a recent report by Inside Virtual Goods. Legal questions continue to surround the sector's ubiquitous practice of “fast following” ' quickly copying competitors' successful gaming concepts.

“There certainly has been a lot of litigation in the area,” says Robert Taylor, managing partner of the Palo Alto, CA, office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “Some of it stems from [the fact that] exactly what people are precluded from copying is not 100% clear.” Taylor represented Psycho Monkey, creator of a game called Mob Wars, in skirmishes over who owned the mob game idea and whether it was ripped off by Zynga's Mafia Wars game.

First, Psycho Monkey founder David Maestri was sued by his former employer, SGN, which contended it owned the Mob Wars idea because Maestri was working for SGN when he developed the prototype. That suit ended in a confidential settlement with SGN recognizing Maestri and Psycho Monkey as the sole owners of the Mob Wars game. Psycho Monkey then sued both Zynga and Playdom, saying their games copied Mob Wars. Those suits settled, too. “The idea that you can have a simulated farm ' it's probably not protectable,” says James Chadwick, an IP lawyer and partner in the Silicon Valley office of Sheppard, Mullin, Richter & Hampton. “There's a real question about whether or not you can force, on the basis of an intellectual property claim, your right to your exclusive use [of that idea].”

The facts alleged in Zynga's suit against Playdom are a trade-secret lawyers' nightmare. One game designer Playdom tried to hire worked on “homework assignments” for Playdom's competitor, but warned co-founder Yue to use the information confidentially, because, he wrote, “it could have wonky legal repercussions.” Yue, before interviewing a Zynga employee for a job in 2008, said in an another e-mail cited in court filings: “Poaching from Zynga. I like it. Though I feel like we might be signing our own death warrant.”

Young Industry

“These are young companies with young entrepreneurs without a lot of experience dotting I's and crossing T's in terms of protection of intellectual property,” Chadwick says.

Zynga seemed to be most upset about the alleged theft of its “Zynga Playbook,” which it described as “literally the recipe book that contains Zynga's 'secret sauce,'” a collection of nonpublic “concept, techniques, know-how and best practices for developing successful and distinctive social games.” And Zynga has tried to make it clear in court filings that Playdom is not just a small start-up it's beating up on. It pointed out, for example, that Playdom is said to have upwards of $50 million in annual revenues and continues to attract financing from third-party investors.

“Zynga's strategy in this and the plethora of other actions it has filed since its founding is to use litigation as a weapon against competitors,” says Carolyn Hoecker Luedtke, a partner at Munger, Tolles & Olson who represents Playdom. “For example, Zynga claims it owns commonly known aspects of social gaming such as avatar customization, leveling up and harvesting.”

Zynga is represented by Bradford Newman, a partner in the Silicon Valley office of Paul, Hastings, Janofsky & Walker who has long handled Yahoo Inc.'s trade secret cases. Newman referred a request for comment to Zynga's new general counsel, Reggie Davis, who came to Zynga from Yahoo last year. Davis wasn't available to comment.

At a March hearing in the Playdom litigation, District Judge Lucy Koh said Playdom had induced Zynga employees to breach their employee confidential information agreements “by begging them to do ripoffs of their competitors,” according to a recent brief Newman filed. Koh described the solicitations as “perhaps one of the most egregious I've seen.” Koh ordered Playdom not to use or destroy Zynga trade secrets, or ask about game improvements during job interviews of Zynga employees.

“These are the early days for the social networking game space,” Chadwick says. “As this sector matures ' I think what you'll see is a little bit less of people bumping up against each other, but it will be more serious when they do.”