Why suing your rivals makes good business sense

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The social games space is full of lawsuits. Mob Wars creator David Maestri left SGN to launch the game himself, so they sued him. They settled and Maestri then sued Zynga (creator of Mafia Wars) and Playdom (creator of Mobsters). Zynga has filed 22 lawsuits itself so far this year. Even Playfish, which has generally stood aloof from these shenanigans has filed a lawsuit this year (although that was about a third party item seller that was selling Pet Society goods, not a copycat game).

Companies generally avoid lawsuits. They are expensive and time-consuming. The outcome is never certain, no matter how good you think your case is. And they run the risk of a counter-suit, particularly in the murky world of “who is copying who” amongst social games companies.

But there can be a good reason to sue a rival. And that is to scare off VCs.

Social games companies are in a landgrab. At stake: a huge slice of the $45 billion that is spent by consumers on games and games-related consumers at retail stores. The leading social games companies are already making hundreds of millions of dollars or revenue, and are profitable. Playfish and Zynga, for example, haven’t had to dip into their most recent rounds of VC funding at all.

But now that they have blazed the trail, others are following. The social games market will get more competitive. One way of competing is to outspend your rivals on marketing. When you have a warchest of $39 million, that’s a lot of marketing.

But the other way is to prevent your rivals from raising their own warchest. And nothing frightens VCs as much as “contingent liabilities”, a fancy phrase for “uncertain amounts we may have to pay in the future”.

So if you want to march ahead in the battle to win market share on Facebook, spend more than your competitors on marketing and slap a lawsuit on anyone you think might be trying to raise capital to compete with you.

It’s aggressive, but all’s far in love and social games development, right?

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