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Commitments and Contingencies
3 Months Ended
Mar. 31, 2022
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

15. Commitments and Contingencies

The amounts represented in the tables below reflect our minimum cash obligations for the respective calendar years based on contractual terms, but not necessarily the periods in which these costs will be expensed in the Company’s consolidated statement of operations.

Licensor and Marketing Commitments

We have entered into several contracts with licensors that contain minimum contractual royalty and marketing commitments that may not be dependent on any deliverables. As of March 31, 2022, future minimum contractual royalty payments due to licensors and associated marketing commitments for the licensed products are as follows (in millions):

 

Year ending December 31:

 

 

 

 

Remaining 2022

 

$

11.0

 

2023

 

 

10.4

 

2024

 

 

 

2025

 

 

15.0

 

2026

 

 

5.0

 

Thereafter

 

 

 

Total

 

$

41.4

 

 

 

Other Purchase Commitments

We have entered into several contracts primarily for hosting of data systems and other services. As of March 31, 2022, future minimum purchase commitments that have initial or remaining non-cancelable terms are as follows (in millions):

 

Year ending December 31:

 

 

 

 

Remaining 2022

 

$

49.2

 

2023

 

 

51.7

 

2024

 

 

36.9

 

Thereafter

 

 

 

Total

 

$

137.8

 

Excluded from tables above is our uncertain income tax position liability of $22.3 million, which includes interest and penalties, as the Company cannot make a reasonably reliable estimate of the period of cash settlement.

Legal Matters

The Company is involved in legal and regulatory proceedings on an ongoing basis. Some of these proceedings are in early stages and may seek an indeterminate amount of damages. If the Company believes that a loss arising from such matters is probable and can be reasonably estimated, the Company accrues the estimated liability in its financial statements. If only a range of estimated losses can be determined, the Company accrues an amount within the range that, in its judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, the Company accrues the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, the Company discloses such an estimate, if material. If such a loss or range of losses is not reasonably estimable, the Company discloses that fact. In assessing the materiality of a proceeding, the Company evaluates, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs that may require changes to business practices in a manner that could have a material adverse impact on the Company’s business. Legal expenses are recognized as incurred.  

On September 12, 2019, the Company announced that an incident had occurred that may have involved player data (the “Data Incident”). Upon our discovery of the Data Incident, an investigation immediately commenced and advisors and third-party forensics firms were retained to assist. The investigation revealed that, during the third quarter of 2019, outside hackers illegally accessed certain player account information and other Zynga information, and that no financial information was accessed. The Company has provided notifications to players, investors, regulators and other third parties, where we believe notice was required or appropriate. The Company has exchanged correspondence with certain regulators as a result of the incident. The Company has also received and has responded to data subject access requests from certain European Union players of Zynga’s games.

Since March 3, 2020, five consumer class action complaints have been filed in connection with the Data Incident in federal court. On March 3, 2020, two plaintiffs – minor “I.C.” (acting through his parent Nasim Chaudhri) and Amy Gitre – filed a class action complaint arising out of the Data Incident (the “Chaudhri complaint”), generally alleging that Zynga failed to reasonably safeguard certain player information, including names, email addresses, and passwords (among other items); failed to provide them with timely notification of the breach; and made misleading representations concerning the safety and security of plaintiffs’ personal information. Plaintiffs allege claims against Zynga under several state law theories, including negligence, intrusion upon seclusion, failure to comply with data breach notification statutes, and unjust enrichment, and they seek injunctive relief and damages. Zynga filed a motion to compel arbitration and arbitration-related discovery on May 8, 2020.

On March 23, 2020, plaintiffs Carol Johnson and Lisa Thomas filed a second class action complaint in the Northern District of California federal court (the “Johnson complaint”). Similar to the Chaudhri complaint, the Johnson plaintiffs – residents of Missouri and Wisconsin – assert Zynga failed to adequately protect certain player information, including names, email addresses, and passwords (among other items). Plaintiffs contend that, despite Zynga’s representations in its privacy policy that sensitive player information would be adequately protected, plaintiffs’ passwords were stored using inadequate hashing methods or in plain text. Plaintiffs allege that the lack of adequate security measures caused them harm as a result of the Data Incident, and they assert numerous various claims against Zynga, including claims for negligence, negligence per se, unjust enrichment, declaratory relief, breach of confidence, breach of contract and implied contract, violations of California’s Unfair Competition Law (“UCL”, CGL 17200, et seq.), and state-specific violations of Missouri’s Merchandising Practices Act and Wisconsin’s Deceptive Trade Practices Act. Plaintiffs seek damages, as well as declaratory and injunctive relief. On May 26, 2020, Zynga filed a motion to compel arbitration and arbitration-related discovery.

On April 15, 2020, plaintiffs Joseph Martinez IV and Daniel Petro, residents of Colorado and Iowa, filed a third class action complaint in the Northern District of California (the “Martinez complaint”). Plaintiffs allege they are longtime Zynga players who were affected by the Data Incident. Similar to the Chaudhri and Johnson plaintiffs, the Martinez plaintiffs generally allege that Zynga failed to adequately store and protect or otherwise secure certain player information, including names, email addresses, and passwords (among other items); that Zynga used outdated and improper password encryption methods; that Zynga failed to adequately provide notice of the Data Incident; and that they have been harmed as a result of the Data Incident. Like the Johnson and Chaudhri plaintiffs, the Martinez plaintiffs assert claims for negligence, negligence per se, and unjust enrichment, as well as contractual claims, and claims for relief under multiple state consumer protection statutes. Additionally, the Martinez plaintiffs also assert misrepresentation and omission claims under California’s false advertising law and the California Consumer Legal Remedies Act. Plaintiffs seek injunctive and monetary relief on behalf of a nationwide class. Zynga responded to the Martinez complaint by filing a motion to compel arbitration on June 19, 2020.

On June 9, 2020 plaintiffs James Oeste and Marissa Oeste, both residents of Maryland, filed a fourth class action complaint in the Northern District of Maryland (the “Oeste complaint”). Plaintiffs allege they were Zynga players who were affected by the Data Incident. Similar to all the foregoing plaintiffs, the Oeste plaintiffs seek to represent a nationwide class and generally allege that Zynga failed to adequately or reasonably protect certain player information, including names, email addresses, and passwords (among other items); that Zynga used outdated or improper password hashing methods; that Zynga failed to adequately provide notice of the Data Incident; and that they have been harmed as a result of the Data Incident. The Oeste plaintiffs assert claims for contractual breach, negligence, negligence per se, invasion of privacy, and claims for relief under California consumer protection and unfair competition statutes. Zynga responded to the complaint on August 31, 2020, with a motion to transfer the action to the Northern District of California. On May 5, 2021, the court granted Zynga’s motion to transfer, and the case was transferred to the Northern District of California. The California district court has consolidated Oeste proceedings in connection with the other already pending cases before the court.

On August 13, 2020, plaintiff Christopher Rosiak filed a fifth class action in the Northern District of California (the “Rosiak complaint”). Plaintiff alleges similar and analogous claims to those in the Martinez (and others) actions pending in the Northern District, alleging that he suffered harm as a result of Zynga’s data breach. Plaintiff Rosiak alleges multiple state law claims, including contract-based claims, negligence, and violation of California’s unfair competition, false advertising, and consumer protection statutes.    

 

On January 6, 2021, the Northern California district court issued an order in three of the above actions—Chaudhri, Johnson, and Martinez—denying Zynga’s motions to compel arbitration without prejudice, and granting an alternative request for preliminary arbitration-related discovery that Zynga had made in connection with its motions. Plaintiffs were ordered to provide Zynga with plaintiffs’ identifying information. Following a status hearing before the court as to all actions pending before it, plaintiffs filed an amended and consolidated complaint in connection with the Chaudhri, Johnson, and Martinez complaints, as well as in connection with the Rosiak complaint. The amended and consolidated complaint was filed in the Northern District of California on March 12, 2021.

 

In response to the amended and consolidated complaint, on April 21, 2021, the Company filed renewed motions to compel arbitration in connection with the claims alleged by three of the individual named plaintiffs in the Chaudhri, Johnson, and Martinez actions. On the same date, the Company also filed a motion to dismiss claims alleged by all remaining plaintiffs in those actions, and in the Rosiak action. Following oral argument held by the court on July 27, 2021, the court granted Zynga’s motion to compel arbitration and granted the motion to dismiss with leave to amend. Plaintiffs filed their second amended consolidated complaint on August 27, 2021. Zynga filed a responsive motion to dismiss the amended complaint on September 20, 2021. On March 29, 2022, the district court granted Zynga’s motion to dismiss the amended complaint with prejudice, resulting in the effective dismissal of all claims in the collective actions.

 

On March 2, 2021, a class-action lawsuit (the “Bourgeois complaint”) was filed in the Superior Court of Quebec, in the province of Montreal, Canada. The lawsuit, which was subsequently amended via an amended application on October 15, 2021, was filed by named plaintiff Gabriel Bourgeois, who purchased loot box items in connection with his use of the Marvel Strike Force and Pokemon Go! electronic and online games (plaintiff does not allege that he purchased a loot box in connection with any Zynga games). Plaintiff alleges that Zynga and multiple other gaming defendants have unlawfully developed, own, and operate an unlicensed gaming system, through the use of loot boxes in connection with their games. Plaintiff asserts that defendants have unlawfully offered loot boxes to the public in connection with their games; failed to properly disclose the odds of winning in connection with loot boxes; and failed to employ appropriate safeguards surrounding minors’ ability to purchase loot boxes. The specific Zynga games at issue—which plaintiff does not claim to have played—include CSR Racing 2, Empires & Puzzles, FarmVille: Country Escape and Dawn of Titans. Plaintiff collectively asserts that by offering loot boxes, all defendants have violated the Criminal Code of Canada provisions that regulate gaming; the Competition Act of Canada; and various individual consumer protection laws of the individual Canadian provinces. Plaintiff seeks monetary damages in the form of compensatory and punitive damages, on his own behalf and that of a nationwide Canadian class. Zynga filed responsive applications on December 21, 2021 seeking to adduce relevant evidence, and for a declinatory exception based on lack of jurisdiction.    

 

On April 12, 2021, IGT and IGT Canada Solutions ULC (“IGT”) served Zynga with a lawsuit in the Western District of Texas federal court (the “IGT complaint”), accusing the Company of infringing United States Patent Nos. 8,708,791; 9,159,189; 7,168,089; 7,303,473; 8,795,064; and 8,266,212. The complaint, as amended on April 26, 2022, alleges that the following games and certain features contained within them infringe on the IGT patents: Zynga Poker, Words With Friends, FarmVille and Zynga social slots games, including specifically, Hit It Rich! Slots. On June 16, 2021, Zynga filed a partial motion to dismiss or strike plaintiff’s claims; and in the alternative, for a more definitive statement. IGT filed its opposition brief on June 30, 2021, and Zynga filed its reply on July 7, 2021. The parties are awaiting a hearing on the motion. On September 28, 2021, the court adopted discovery and scheduling deadlines that include a dispositive motion deadline of October 26, 2022, and an anticipated trial date of February 6, 2023.

 

On February 24, 2022, a putative class action complaint was filed in the U.S. District Court for the Western District of Washington by plaintiffs Tonda Ferrando and Dex Marzano, both of whom purport to be Washington residents, on behalf of a Washington class of individuals who made purchases in the Company’s online social casino games, including Hit it Rich!, Black Diamond Casino, Wizard of Oz Slots, Willy Wonka Slots, and Game of Thrones Slots Casino (the “Washington player complaint”). The Washington player complaint alleges that those games violate Washington state laws. Following a formal mediation session on May 4, 2022 between Zynga and plaintiffs, the parties agreed to a settlement, subject to court approval, that calls for a full release of claims, in exchange for a settlement payment of $12.0 million by Zynga, as well as agreement to certain non-monetary terms. The Company accrued $12.0 million within other current liabilities in our consolidated balance sheet as of March 31, 2022 related to this matter.

 

Beginning March 14, 2022, multiple individual complaints filed by individual shareholder plaintiffs in have been filed.  The actions have been filed in differing jurisdictions, and to date include the following:  Stein v. Zynga Inc., et al., No. 22-cv-2091 (S.D. N.Y.); O’Dell v. Zynga Inc., et al., No. 1:22-cv-02139 (S.D. N.Y.); Henninger v. Zynga Inc., et al. No. 3:22-cv-01694 (N.D. Cal.); Whitfield v. Zynga Inc., et al. No. 2:22-cv-01054 (E.D. Pa.); Baker v. Zynga Inc., et al. No. 1:22-cv-01514 (N.D. Cal.); LR Trust v. Zynga Inc., et al. No. 3:22-cv-01821-AGT (N.D. Cal.); Daks v. Zynga Inc., et al. No. 1:22-cv-02434 (S.D. N.Y.); Mercer v. Zynga Inc., et al. No. 1:22-cv-01691 (E.D. N.Y.); Bolyen v. Zynga Inc., et al. No. 1:22-cv-00393 (D. Del.); and Morano v. Zynga Inc., et al. No. 1:22-cv-03084 (S.D. N.Y.). The individual shareholder plaintiffs collectively allege violation of federal securities laws in connection with the Take-Two Interactive Software, Inc. Registration Statement on Form S-4 (the “Registration Statement”) filed with the Securities and Exchange Commission on March 11, 2022 and Zynga’s Definitive Proxy Statement filed on Schedule 14A with the SEC on April 7, 2022. Plaintiffs generally allege that Zynga defendants (including directors and officers of the company) violated the Securities and Exchange Act by causing a materially incomplete and misleading Registration Statement and Definitive Proxy Statement to be filed on March 11, 2022 and April 7, 2022, respectively, and disseminated to Company stockholders. Specifically, plaintiffs allege that the Registration Statement and Definitive Proxy Statement contain materially incomplete and misleading information concerning: the analyses performed by the Company’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”) in support of its fairness opinion, the independence of certain Zynga directors, and Goldman Sachs’ relationship with Take-TwoIn addition, on April 28, 2022, the shareholder plaintiff in the Morano action filed an amended complaint styled as a class action and also filed an application for a preliminary injunction.  The plaintiff withdrew their application on May 2, 2022. Zynga will defend itself vigorously in response to the complaints.  

 

On May 2, 2022, IBM served Zynga and its subsidiary Chartboost, Inc. with a lawsuit alleging patent infringement in the District of Delaware federal court. Specifically, the complaint alleges Zynga’s infringement of United States Patent Nos. 7,072,849 (the "'849 patent"), 7,631,346, and 7,702,719; and Chartboost's infringement of the '849 patent and United States Patent No. 8,315,904. The Company is reviewing the complaint, and intends to assert a vigorous defense.

The Company intends to defend itself vigorously against all claims asserted. Except as disclosed above, at this time, the Company is unable to reasonably estimate the loss or range of loss, if any, arising from any of the above-referenced matters.  The Company is, at various times, also party to various other legal proceedings, claims and/or regulatory inquiries not previously discussed which arise in the ordinary course of business. In addition, the Company may receive notifications 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, expensive legal fees, costly royalty or licensing agreements, or orders preventing us from offering certain games, features, or services, and may also result in changes in the Company’s business practices, which could result in additional costs or a loss of revenue and could otherwise harm the Company’s business. Although the results of such litigation cannot be predicted with certainty, the Company believes that the amount or range of reasonably possible losses related to such pending or threatened litigation will not have a material adverse effect on its business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably.