Zynga 2012 Annual Report Download - page 107

Lead Case No. 12-cv-04007-JSW. On January 23, 2013, the court entered an order appointing a lead plaintiff and
approving lead plaintiff’s selection of lead counsel. In addition, a securities class action captioned Reyes v. Zynga
Inc., et al. was filed on August 1, 2012 in San Francisco County Superior Court, the action was removed to the
Northern District on September 28, 2012, and an order remanding the action to San Francisco County Superior
Court was entered on January 23, 2013. The various class action complaints allege that the defendants violated
the federal securities laws by issuing false or misleading statements regarding the Company’s business and
financial projections. The various plaintiffs seek to represent a class of persons who purchased or otherwise
acquired the Company’s securities between December 16, 2011 and July 25, 2012. The complaints assert claims
for unspecified damages, and an award of costs and expenses to the putative class, including attorneys’ fees. The
Company believes it has meritorious defenses and will vigorously defend these actions.
Since August 3, 2012, eight stockholder derivative lawsuits have been filed in State or Federal courts in
California and Delaware purportedly on behalf of the Company against certain current and former directors and
executive officers of the Company. The derivative plaintiffs allege that the defendants breached their fiduciary
duties and violated California Corporations Code section 25402 in connection with our initial public offering in
December 2011, secondary offering in April 2012, and allegedly made false or misleading statements regarding
the Company’s business and financial projections. Beginning on August 3, 2012, three of the actions were filed
in San Francisco County Superior Court. On October 2, 2012, the court consolidated those three actions as In re
Zynga Shareholder Derivative Litigation, Lead Case CGC-12-522934. Beginning on August 16, 2012, four
stockholder derivative actions were filed in the United States District Court for the Northern District of
California and one derivative action was filed in the United States District Court for the District of Delaware.
The plaintiff in the District of Delaware action voluntarily dismissed the action on November 19, 2012. The
derivative actions include claims for, among other things, unspecified damages in favor of the Company, certain
corporate actions to purportedly improve the Company’s corporate governance, and an award of costs and
expenses to the derivative plaintiffs, including attorneys’ fees. We believe that the plaintiffs in the derivative
actions lack standing to pursue litigation on behalf of Zynga.
In February 2013, the parties in the actions described above expect to negotiate and submit pleading and
briefing schedules for court approval. There has been no discovery or other substantive proceedings in the actions
to date. Accordingly, we are not in a position to assess whether any loss or adverse effect on our financial
condition is probable or remote or to estimate the range of potential loss, if any.
On February 10, 2012, an action entitled Personalized Media Communications, LLC v. Zynga Inc., Case
No. 2:12-cv-68 was filed against the Company in the United States District Court for the Eastern District of
Texas. The plaintiff alleges infringement of four patents by 39 games and seeks an undisclosed amount of
damages. On January 25, 2013, the court denied the Company’s motion to transfer the action to the Northern
District of California. The matter is scheduled to be called for trial on November 4, 2013. Discovery is ongoing
and the parties are in the process of patent claim construction. The Company believes it has meritorious defenses
and will vigorously defend this action. Given that the patent claims have not yet been construed and the
Company’s defenses have not yet been heard, we are not in a position to assess whether any loss or adverse effect
on our financial condition is probable or remote or to estimate the range of potential loss, if any.
The Company is also party to various legal proceedings and claims which arise in the ordinary course of
business. In addition, we may receive notification alleging infringement of patent or other intellectual property
rights. Adverse results in any such litigation, legal proceedings or claims may include awards of substantial
monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain games,
features, or services, and may also result in changes in our business practices, which could result in additional
costs or a loss of revenue for us and could otherwise harm our business. Although the results of such litigation
cannot be predicted with certainty, we believe that the amount or range of reasonably possible losses related to
such pending or threatened litigation will not have a material adverse effect on our business, operating results,
cash flows, or financial condition should such litigation be resolved unfavorably. We recognize legal expenses as
incurred.
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