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Class-Action Suit Filed Against Zynga, Facebook Over Offer-Based Ads

Class-Action Suit Filed Against Zynga, Facebook Over Offer-Based Ads

November 20, 2009 | By Eric Caoili

November 20, 2009 | By Eric Caoili
More: Console/PC

Sacramento-based law firm Kershaw, Cutter & Ratinoff (KCR) filed a class-action suit against Facebook developer Zynga, seeking upwards of $5 million in damages due to allegedly misleading lead generation ads featured in the latter's games.

The Cost Per Action (CPA) advertisements in question allow users to earn virtual currency for social games like FarmVille and Mafia Wars by completing surveys, taking quizzes, or signing up for trial offers. Some ads are for legit companies like Netflix and Amazon, but others resulted in unauthorized credit, debit, or mobile charges to consumers for as much as $165.

Zynga pledged to keep these misleading offers out of its games, but when an error with ad provider DoubleDing caused the offers to appear again in the developer's recently launched FishVille, Facebook temporarily suspended the game.

The developer responded by removing all CPA ads from its titles until it could identify which specific offers were showing up. FishVille was brought back online a few days afterwards.

Despite the company's promises, KCR began investigating a possible class action lawsuit last week, pointing to a recently unearthed video shot last Spring in which Zynga CEO admitting he did "every horrible thing in the book ... just to get revenues right away" as proof that the FarmVille studio was aware of the harm its offers caused players.

The firm cited the footage in its class-action lawsuit filed with a federal district court in Northern California this week, and claims that Zynga generated "enormous profits through these false and misleading special offers," reeling in anywhere from $33 to $84 million from consumers who responded to the CPA ads displayed with the studio's games.

KCR also names Facebook as a defendant, arguing that a significant portion of the social network's revenues come from Zynga's games. The law firm estimates that 10 to 20 percent of Facebook's $500 million annual revenues comes from games released by Zynga, the largest application developer on the service (according to monthly active users).

"Plaintiff is further informed and believes that Facebook is fully aware of the false and misleading nature of the advertising promulgated through Zynga's applications and that, despite this, it actively engages in promoting Zynga's games to the public," says the filing, which was posted online by Valleywag.

The lawsuit comes only three days after Zynga announced it had raised $15.2 million in a third round of funding.

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