Electronic Arts Inc. (EA - Analyst Report) has sued Zynga Inc. (ZNGA - Snapshot Report), alleging that some characteristics of Zynga’s popular The Ville had unmistakable similarities with the former’s The Sims Social. EA complained that Zynga had not only copied the basic structure of the game, but also that some of the characteristics of the game had been replicated.
This allegation by EA comes on the heels of launching the The Sims Social’s latest version SimCity Social on Facebook Inc. (FB - Analyst Report), where The Ville is already available. Since the launch of SimCity Social, the game has garnered 10 million monthly active users (MAU), while the The Ville, which was launched last quarter, already has over 6 million daily active users (DAU). Thus, EA’s lawsuit comes at an opportune moment with the intention to dent The Ville’s popularity and establish its own game on Facebook.
This is not the first time that Zynga has been accused of copying games from other publishers. Earlier, Nimblebit had accused Zynga’s Dream Heights of being a copy of the formers’ Tiny Tower, which had won Apple Inc.’s (AAPL - Analyst Report) iTunes Rewind iPhone Game of the Year award in January. Also, Digital Chocolate had accused Zynga’s Mafia Wars of being a rip off of the former’s Mob Wars.
However, most of these cases against Zynga came from small developers and were subsequently settled out of court. This time around things may not be so easy, since Zynga is now up against EA, which has the financial muscle to pursue a lawsuit. The Sims has been one of the most popular franchises for EA and it was one of the major contributors to EA’s robust digital revenue growth in the last quarter. Thus, the stakes are quite high for EA.
On the other hand, Zynga’s future growth prospects will suffer a heavy blow if it fails to defend the lawsuit. Moreover, a ban on its The Ville game would have a negative impact on its top line. Legal costs would be another factor that the company would have to deal with.
However, both parties could prefer to settle out of court, as legal battles are not only time consuming but also expensive. With the lingering macroeconomic sluggishness taking a toll on the overall video game industry, both parties would rather concentrate on their core operations to improve their company’s fundamentals than get into a legal tussle.
We have a Neutral recommendation for both Electronic Arts and Zynga in the long term. Currently, both Electronic Arts and Zynga have a Zacks #3 Rank, which implies a Hold rating in the short term.