November 4, 2010
Yesterday, Federal District Court Judge, Saundra Armstrong, in Oakland, California issued a landmark decision in our class action lawsuit against Zynga. The suit was filed on behalf of individuals who were allegedly deceived by "special offers” presented to players of Zynga’s social networking games, such as FarmVille and Mafia Wars.
Zynga is the leading publisher of "social games” — games played primarily on social networks like Facebook. It is reported that Zynga generates hundreds of millions of dollars of revenue each year from these games. Although they are free to play, all of Zynga's games involve the ability to earn "virtual currency" with real-world money. However, for those who do not want to pay real money, Zynga gives them the option of obtaining virtual currency by participating in "special offer transactions.
For example, one popular special offer appearing within Zynga games is an IQ test. The offer tells the player that if they participate in an online IQ test they will obtain a sum of virtual currency. The player takes the test online and is then directed to provide their cell phone number so that the results of the test can be sent to them via text message. The class action suit against Zynga alleges that, unknown to the player, buried in the fine print of the last page (or sometimes not revealed at all) is language indicating that the consumer is signing up for a monthly subscription to a worthless text message service. The player then starts receiving a $20 monthly charge on their cell phone bill. The plaintiff in this case alleges that this is just one of several scams that have misled millions of people throughout the United States.
The plaintiff also alleges that Zynga and Adknowledge, Inc., which owns Super Rewards, Zynga’s partner in the special offer transactions, knew that virtually all of these special offers were really scams designed to steal from consumers. In fact, in a 2009 lecture given by Zynga’s CEO, Mark Pincus, to a group of young entrepreneurs, Mr. Pincus publicly admitted Zynga’s knowledge and role in these scams. Specifically, Mr. Pincus bragged that Zynga "did every horrible thing in the book to just get revenues right away in order to keep control of his company.” Shortly after a video of this lecture appeared on the Internet, Zynga took down all Special Offer Transactions on its games until it could find "any that offer clear user value.”
In response to the plaintiff’s complaint, Zynga asked the court to dismiss the case on the grounds that Zynga was immune under the Communications Decency Act (the "CDA”). The CDA was enacted by Congress in the late 1990’s in response to a state court decision holding an internet service provider liable for allowing a third party to post a libelous message on one of its financial message boards. Specifically, the CDA provides that any website or other interactive computer service that posts material created by third parties cannot be found liable as a "publisher” of that material. Citing a very long line of cases finding websites immune from liability under the CDA, Zynga’s motion alleged that it was immune because third parties, and not Zynga, created the misleading special offers that appeared within its games.
The Federal District Court in Oakland disagreed with Zynga’s arguments. The court determined that a website operator can be held liable for objectionable material produced by third parties if the website "materially contributed to the alleged illegal content.” The court found that because the plaintiff had adequately alleged Zynga’s "material contribution” to the illegal conduct, Zynga was not entitled to immunity under the CDA.
Plaintiff’s attorney, KCR's Stuart Talley, noted: "The court’s ruling on this issue is a major victory for consumers. For years, large companies have successfully convinced courts to expand the CDA well beyond its original intent in order get immunity for scams and other illegal conduct perpetrated through their websites. Hopefully, this decision will send a message to companies that just because a scam is committed over the Internet doesn’t mean that those who helped perpetrate the online scam can escape liability. The CDA does not provide immunity for theft, and it no longer will provide bulletproof protection for companies who partner with fraudsters on the internet.”
Talley also noted that he believes this decision is a major victory for those defrauded by Zynga’s games. "According to published reports, Zynga made more than $160,000,000 from the fraudulent special offer transactions appearing within its games. However, it is important to note that this is just a sliver of the total amount that was actually taken from consumers, since Zynga only receives a fraction of the amount actually stolen by these scam artists. As co-conspirators in these scams, Zynga and Adknowledge will be responsible for all the money taken from consumers; not just the amount it received. By the end of the day we expect this amount to be more than a billion dollars.”
The Court’s decision can be found here.