On February 6, 2012, a federal court in Oakland, California denied the popular Facebook application “Farmville” operator’s (Zynga, Inc.) motion to dismiss several claims brought by the inventor of “myFarm” (SocialApps, LLC, or “SA”)) for alleged theft of the source code, game images, and “concepts and features” used in the myFarm app. The court allowed SocialApps to proceed with its claims that Zynga took SA’s trade secrets, and breached implied contracts, “covenants of good faith and fair dealing,” and SA’s “confidences” in connection with a pre-acquisition non-disclosure agreement. In doing so, the court paved the way for SA to hold Zynga liable for allegedly betraying SA’s unwritten, but clearly implied, trust and confidence it placed in Zynga while the two discussed Zynga’s buyout of myFarm.
SA alleged that it launched myFarm the first-ever virtual farming game, in November 2008 on Facebook. The application thereafter attracted millions of users. In May 2009, in anticipation of Zynga’s acquisition of myFarm, Zynga and SA entered into a written confidentiality agreement to protect SA’s assets while Zynga conducted its due diligence. Within a month, however, Zynga used SA’s source code, game images, and other “concepts and features” to launch FarmVille, all without buying the rights or obtaining SA’s consent. Using the ruse of "due diligence," Zynga allegedly had SA produce its confidential source code and other information for ‘myFarm,’" which Zynga allegedly use in "FarmVille," the complaint said.
In June 2011, SA sued Zynga, making six claims for copyright infringement, statutory trade secrets theft, breach of contract, breach of “implied contract,” breach of confidence, and breach of implied covenant of good faith and fair dealing, and later adding a seventh claim for “unjust enrichment.” In October 2011, Zynga asked the court to dismiss SA’s claims for trade secrets theft, breach of implied contract, breach of confidence, and implied covenant of good faith. Zynga argued that SA’s alleged trade secrets were on the internet, and thus not secret; that the claims breach of implied contract, confidence, and implied covenant of good faith were duplicative of the written contract claim, and that the California Trade Secrets Act preempted the breach of confidence claim.
The court largely rejected Zynga’s arguments, at least at the preliminary stages of the case. The court did strike SA’s trade secrets theft claim, but only insofar as it based the claim on any of myFarm’s publicly available images and features.
"As [SocialApps] has alleged, the ‘myFarm’ game was publicly released in November 2008, and therefore the images and features were visible to the public several months before the May 2009 letter agreement or June 2009 release of ‘FarmVille,’" the Court wrote. The "images and features" component of SocialApps’ trade secrets claim will therefore be stricken, leaving the "proprietary source code" component alive, the judge ruled.
The court upheld the trade secrets theft claim to the extent it was based on SA’s source code, and upheld the other implied contract, confidence, and implied covenant of good faith confidence claims. In essence, the court held that SA could be held liable for violating not only the letter of the May 2009 non-disclosure agreement, but also its spirit.
Also of note is the court’s holding that, at least at this stage, that SA’s breach of confidence claim was not preempted by the Trade Secrets Act. The court held that to the extent SA based its confidence claim on Zynga’s unauthorized use or disclosure of myFarm’s “concepts and/or game features” that did not involve SA’s proprietary source code underlying its trade secrets theft claim, SA stated a valid information-theft claim separate from a trade secrets violation. The decision is consistent with other courts’ recent decisions that a plaintiff may maintain an independent common law claim for information theft, at least at the pleading stage. (i.e. Amron Int’l Diving Supply, Inc. v. Hydrolink Diving Comm., Inc., No. 11-cv-1890-H (JMA), 2011 U.S. Dist. LEXIS 122420, at * 25-27 (S.D. Cal. Oct. 21, 2011).
We will continue to monitor this interesting new case.