Zynga Countersues Electronic Arts Over Unfair Competition

Zynga Inc. (ZNGA), the biggest developer of games played on Facebook Inc. (FB), claimed Electronic Arts Inc. (EA) demanded an improper no-hire agreement to staunch executive defections from EA and threatened to file sham lawsuits when Zynga refused.

EA’s chief executive officer, John Riccitiello, instructed company lawyers to get an agreement from Zynga prohibiting future hiring of EA employees as part of an “anticompetitive and unlawful scheme” that violates California’s unfair competition law, Zynga attorneys said today in filings in San Francisco federal court.

Responding to EA’s Aug. 3 lawsuit claiming Zynga’s “The Ville” game infringed copyrights of its “The Sims Social,” Zynga attorneys denied the claims and asked a federal judge for an order barring EA from threatening litigation and interfering with its hiring. It said EA’s copyright claims are meritless.

“Today we responded to EA’s claims, which we believe have no merit,” Reggie Davis, general counsel for Zynga, said in a statement. “We also filed a counterclaim which addresses actions by EA we believe to be anticompetitive and unlawful business practices, including legal threats and demands for no-hire agreements.”

EA said in its Aug. 3 copyright complaint that senior executives who left for Zynga had details about the company’s strategy and development for “The Sims Social.”

‘Diverting Attention’

“This is a subterfuge aimed at diverting attention from Zynga’s persistent plagiarism of other artists and studios,” John Reseburg, an EA spokesman, said in an e-mail. “Zynga would be better served trying to hold onto the shrinking number of employees they’ve got, rather than suing to acquire more.”

Zynga has struggled with slowing sales and a declining stock price as it competes with Electronic Arts and other makers of games for social networks and mobile devices. EA has grown to become the third-largest maker of games on Facebook, with 47.6 million users, as it seeks to reduce the company’s reliance on retail sales of more traditional video games.

While Zynga has stirred the rivalry between the two companies by hiring top managers from EA, at least three of those executives have left Zynga in recent weeks as the falling stock price has eroded the value of shares used to compensate employees.

Management Overhaul

John Schappert, a former EA executive who last year was hired as chief operating officer at Zynga, departed the company last month after a management overhaul had stripped him of oversight of key operations. Jeff Karp, another former EA manager, resigned as Zynga’s chief marketing and revenue officer earlier this week.

Barry Cottle, ex-senior executive directly responsible for EA’s social game development, joined Zynga in January. The three executives are named in EA’s lawsuit.

None of the men provided Zynga with confidential EA information and Zynga entered settlement agreements with EA in 2011 over hiring, lawyers for Zynga said in a filing today. Details of the agreements were redacted in the filings.

“The Sims Social,” released in August 2011, has generated more than $50 million in revenue and averaged about 3 million daily users in the past month, Frank Gibeau, president of Electronic Arts Labels, said on a post-earnings conference call on July 31.

Zynga, based in San Francisco, said in an Aug. 3 e-mail that “The Ville” builds on its earlier games, and Davis alleged that the recently released EA game “SimCity Social” had “an uncanny resemblance” to Zynga’s “CityVille” game.

Zynga has 274 million monthly users on Facebook while Redwood City, California-based Electronic Arts has 53 million players, according to website AppData. Activision Blizzard Inc. (ATVI), maker of “World of Warcraft,” is the largest U.S. video-game maker.

The case is Electronic Arts v. Zynga, 12-4099, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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