Claims in Facebook-Zynga Suit Mirror Those in Senate Commerce Investigation
The allegedly deceptive cash-back and free-trial online offers under investigation by the Senate Commerce Committee (WID Nov 18 p1) have shown up in a different form in litigation against Facebook and online game maker Zynga. A lawsuit seeking class-action status in U.S. District Court in San Francisco claims that popular games available on Facebook, including Mafia Wars, Zynga Poker and FarmVille, include offers that hoodwinked players into buying subscriptions or charged them for products even after they canceled within the trial window. It asks for at least $5 million in refunds. Zynga CEO Mark Pincus’s video-captured admission that he “did every horrible thing in the book” to quickly raise money figures prominently in the complaint. A Senate Commerce aide told us the committee was “familiar” with the online-game issue, “but it’s not part of our investigation.”
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Unlike the Senate investigation, which focused on unrelated offers following purchases on major Web retailers such as 1-800-Flowers and Orbitz.com, the advertisements and offers in free Zynga games are directly tied to gameplay. Players can purchase in-game currency “by accomplishing varying tasks in the game,” through “real money,” or by participating in “special offers” of the sort common in the lead-generation industry, the suit said. One of the more common offers was for an “IQ test” that asks for a user’s mobile phone number for the purpose of sending them a text with their revealed IQ. But handing over the number covertly signs up the user for a “useless SMS service” billed monthly, and there are “hurdles” to canceling the service, the suit said.
Though the suit doesn’t mention the demographics that dominate certain games, Zynga’s top lawyer recently said the company was increasingly developing games that appeal to younger children, who are in theory barred from using Facebook under the site’s terms (WID Nov 4 p1). FarmVille is one of the more recognized games for children. Companies that target children under 13 must take special precautions under the Children’s Online Privacy Protection Act.
Lead plaintiff Rebecca Swift said she was charged $10 on four occasions on her mobile-phone bill after providing her phone number in YoVille to get “YoCash” in the game, without any notice of the associated charges. She also signed up for a 15-day “risk free trial” for “Green Tea Purity” and sent a cancellation notice to the “apparent manufacturer” after receiving a package, but was charged $165 in two transactions, the suit said. She hasn’t received a refund yet. (Unlike the consumers involved in the Senate investigation, Swift voluntarily provided a debit card for the free-trial offer.)
“Over the past four years, Zynga and Facebook have generated enormous profits” through the games, with Zynga co- founder Andre Trader publicly estimating the offers bring in a third of its revenue, the suit said. Based on estimates from “industry sources,” that would add up to $33 million to $84 million a year. The company with the most revenue from offers investigated by the Senate Commerce Committee was Classmates.com, which brought in $70 million over the years.
The suit estimated that 10 to 20 percent of Facebook’s revenue came from offers in Zynga. The companies “were aware, or should have been aware, of the false and misleading nature” of the offers, and they “actively encouraged” Swift to accept the offers “through the design and promotion of their on-line games.” We couldn’t reach Zynga or Facebook for comment. Neither had filed a reply as of Tuesday afternoon.
CEO Pincus was captured on video this spring giving a talk on how he learned to “control your destiny” by bulking up on revenue before asking for venture capital. “I funded the company myself but I did every horrible thing in the book to just get revenues right away,” he told a laughing crowd on a clip available on YouTube, also quoted in the suit. “We gave our users poker chips if they downloaded this wiki toolbar … I downloaded it once and I couldn’t get rid of it.” Since the video went public Zynga has dropped the offers and Facebook made policy changes to address the offers, but neither has offered a refund to users who responded to the offers, the suit said.
The class allegations estimate that users who responded to an offer lost $100 to $300 on average. “Even if the members of the Class could afford such individual litigation, the court system could not,” given that potentially millions of consumers were taken in by the offers. The practices enabled by Facebook and Zynga violate California unfair- competition and false-advertising laws and common-law unjust enrichment, the suit said.