'Farmville' creator Zynga files for IPO

SAN FRANCISCO -- Social-gaming sensation Zynga filed an initial public offering today that could raise up to $1 billion and value it at up to $20 billion.

The maker of the popular FarmVille and CityVille games, played by tens of millions, has picked Morgan Stanley to lead the offering, according to a government filing. Goldman Sachs Group, J.P. Morgan Chase, Barclays Capital and Bank of America Merrill Lynch will also play a role in the IPO.

A valuation of $20 billion would be nearly equal to Yahoo's market value of $20.1 billion.

Beyond making Zynga's investors and executives filthy rich, the IPO should prove a boon to the fledgling $2.5 billion social-gaming market, say gaming executives.

"Zynga has had a massive positive impact," says Vikas Gupta, CEO of TransGaming. Its service, GameTree TV, delivers casual games via set-top TV boxes. "Zynga has made video games more mainstream than ever before. It has shattered all the rules about monetization about free games. And it has changed the industry's thoughts about the need to create multimillion-dollar games."

In the filing, Zynga said it posted a $100 million profit last year, most of it courtesy of its gaming partnership with Facebook. Indeed, gaming has proven to be a reliable moneymaker on Facebook.

Adds Rajat Paharia, founder and chief product officer at Bunchball, "It raises our profile with consumers and business partners."

Zynga's planned stock offering comes hard on the heels of IPOs by HomeAway, LinkedIn, Pandora and Groupon. The tech wave has helped propel second-quarter IPO revenue past $10 billion for the third straight quarter, with $11.9 billion on 47 IPOs, according to market researcher PwC.

The feverish trading of recent IPOs, and anticipation for Facebook and Groupon, has fed into what many market observers are calling a tech bubble. The last one, more than 10 years ago, popped amid overvalued stocks in spite of underwhelming revenue.

Many of the backers of Zynga and its flamboyant CEO, Mark Pincus, are some of Silicon Valley's biggest influencers. They inclue venture-capital heavyweight Kleiner Perkins Caufield & Byers, in the form of partners John Doerr and Bing Gordon; LinkedIn co-founder Reid Hoffman; Digital Sky Technologies, the firm run by Russian investor Yuri Milner; VC firm Andreessen Horowitz, headed by Netscape co-founder Marc Andreessen; and Facebook board member Peter Thiel.

The 4-year-old Zynga, which boasts about 270 million unique monthly users, is widely available on Facebook, Yahoo and other digital platforms. It is expected to ring up $1.5 billion in sales of virtual goods and advertisements this year, says research firm GreenCrest Capital.

Nortel sells patents to consortium for $4.5 billion

NEW YORK — A consortium that includes leading smartphone makers Apple and Research In Motion is paying $4.5 billion in cash for about 6,000 patents and patent applications belonging to bankrupt telecom-equipment maker Nortel Networks Corp.

The group prevailed in an auction this week over Google Inc., which had said it planned to bid $900 million in cash for all of Nortel's remaining patents and patent applications. Phones running Google's Android system compete with Apple's iPhone and RIM's BlackBerry devices.

Nortel's patents cover many technologies, including data networking, semiconductors and next-generation wireless systems known as fourth generation, or 4G. Nortel said the portfolio "touches nearly every aspect of telecommunications and additional markets … including Internet search and social networking."

A former tech highflier in the 1990s, Nortel at its zenith had more than 95,000 employees and a market capitalization of nearly $300 billion. At one point in 2000, Nortel accounted for a third of the market value of the Toronto Stock Exchange. But it grew too quickly and overpaid for acquisitions. Nortel also ran into problems, including an investigation into its accounting practices, which led to shareholder lawsuits.

• MORE: U.S. issues partial ruling against Kodak in patent dispute

Nortel filed for bankruptcy protection in the U.S. and Canada in January 2009, hobbled by a sharp downturn in orders from phone companies and looming debt payments. The filing came one day before it was due to make a debt payment of $107 million.

It has been selling its operations off one piece at a time since then.

In a statement Friday, Google General Counsel Kent Walker called the outcome "disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition. We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers."

Google had said it wanted the patents to defend itself against patent lawsuits from other companies until Congress enacts broader changes to the patent system to help reduce such litigation. Google gives away its Android software for free, counting on its wider use to drive usage of other Google services, such as search and maps.

The winning consortium consists of:

• Apple Inc. of Cupertino, Calif., maker of the iPhone, iPad and other popular devices;

•Research in Motion Ltd. of Waterloo, Canada, which makes the BlackBerry;

•Microsoft Corp. of Redmond, Wash., which is pushing phones running on its Windows operating system and operates the search engine Bing;

•EMC Corp. of Hopkinton, Mass., which makes companies for data storage;

• LM Ericsson AB of Stockholm, Sweden, which makes wireless equipment; and

•Sony Corp. of Tokyo, which makes a range of consumer-electronic devices and has a joint venture with Ericsson for mobile phones.

The patent auction, which was originally slated to take place June 20, had been postponed by one week as Nortel cited "the significant level of interest" in the sale of its patent portfolio.

Nortel Chief Strategy Officer George Riedel said "the size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world."

Ericsson said it had contributed $340 million to the bid. Ericsson had already purchased many of Nortel's other assets, including its wireless network business in 2009 for $1.13 billion.

It was not known how much each of the other companies paid. EMC would only describe the amount as "not material" to its overall finances.

The deal is expected to be completed in the third quarter of this year and will need approval from U.S. and Canadian bankruptcy courts in a joint July 11 hearing.

Reports say FTC investigating Twitter

WASHINGTON (AP) — Federal regulators are looking into the interactions between Twitter and a company called Ubermedia, which develops applications that help users follow and communicate with each other on Twitter's popular online messaging service, according to two published reports.

The Federal Trade Commission inquiry is still at a preliminary stage and the focus remains unclear, the Wall Street Journal reported Thursday.

The Business Insider blog, which first reported the probe, said FTC antitrust investigators are studying how Twitter deals with outside companies that build applications for its messaging platform — such as photo-sharing, URL-shortening and advertising services — and whether it is trying to limit competition by buying or banning outside developers.

The FTC regularly looks into complaints — often filed by rivals — of anticompetitive behavior by companies in the technology sector. The initial probes do not always turn into full-blown investigations.

• MORE: U.S. issues partial ruling against Kodak in patent dispute

The Journal reported that Twitter blocked UberMedia from accessing messages on its platform, called "tweets," earlier this year, but has since restored access.

The FTC and Twitter declined comment. Ubermedia did not immediately respond to a request for comment.

'Rio' home video version to offer 'Angry Birds'

Some highflying birds of a feather — the video game Angry Birds and the movie hit Rio— are sticking together for a lofty home video release.

The Finnish game designers at Rovio, the studio that developed Angry Birds, have created 15 new Rio-themed levels that will be available to buyers of the DVD and Blu-ray versions of the Fox film, out Aug. 2 for $17 to $25.

Fox and Rovio's earlier teaming on a special version of the game for the movie's theatrical release in March was "a perfect alignment of planets," says Mary Daily, head of marketing for Twentieth Century Fox Home Entertainment. "They have a worldwide phenomenon in the Angry Birds game, and we have the colorful, beautiful movie all about birds. … We are going to continue the relationship."

Included in the DVD and Blu-ray releases are codes to download the new levels for various devices including Android phones and tablets, Apple iPhones, iPod Touches and iPads, as well as Windows and Macintosh computers. "This is the only way they can get it," Daily says.

Fox's Rio would be expected to be a home video success without added plumage. The film, which grossed $473 million worldwide, is one of the year's top hits, ranking No. 7 on boxofficemojo.com.

But the addition of exclusive Angry Birds Rio levels should help the home video version take flight even faster. The addictive game, in which players fire birds at targets using a slingshot, has a frenetic following. Players have downloaded more than 250 million copies since the game launched in Apple's App store in December 2009.

Both the DVD and Blu-ray editions include a digital copy that can be downloaded for use on computers or mobile devices.

On the Blu-ray disc is a "Coloring with Blu" app for Apple and Android tablets that stars the film's leading macaw (voiced by Jesse Eisenberg) with 60 pages of pictures that can be colored, then printed or shared via e-mail or Facebook.

Fox is also releasing a slightly-more expensive "quad pack" that includes a 3-D version of the movie on Blu-ray (3-D compatible disc player and TV required) along with the DVD, Blu-ray and digital copies.

The studio has seen more families opt for Blu-ray releases than expected.

Judge rejects Google argument, allows Wi-Fi suit to proceed

SAN FRANCISCO — A judge ruled that Google Inc. overstepped its bounds by enabling its vehicles to collect emails, Internet passwords and Web surfing behavior while photographing neighborhoods for the search giant's popular "Street View" mapping feature.

Google has apologized for the snooping, promised to stop collecting the data and said what it did was inadvertent but not illegal.

But a federal judge late Wednesday rejected Google's claim that data transmitted wirelessly without password protections are essentially publicly accessible radio broadcasts. It's the first such court ruling of its kind.

U.S. District Court Judge James Ware said that wireless networks accessed by millions in their homes, coffee shops and wherever Wi-Fi is offered are not exempt from the Wiretap Act, which makes it illegal to eavesdrop on electronic communications that are not "readily accessible to the general public" such as cell phone conversations.

Ware said that Google employed sophisticated computer tools, including use of a so-called "wireless sniffer," to capture, store and decipher "data packets" transmitted wirelessly.

Google said in a statement that it was reviewing the decision to determine whether to appeal. The company said it still believes the allegations that it violated the Wiretap Act are "without merit."

Jim Dempsey, an Internet privacy expert at the Center for Democracy & Technology, said the wiretap law needs updated to address this issue. Dempsey said the law was last amended in 1986 to address "CB radios and baby monitors" and doesn't discuss wireless networks.

"I don't think anyone doubts that it should be illegal to intercept someone's communications," Dempsey said. "It should clearly be a crime to intercept those things. But I think it's equally clear that the law doesn't clearly cover that issue right now and that the law is really a mess."

German regulators uncovered the data collection in 2010 when they asked Google about the type of data its specialized street view vehicles were collecting. Each vehicle was equipped with nine cameras to photograph 360-degree images of streets and powerful antennas with custom software to capture wireless signals. Google said it used the captured data to improve its location-based services such as its Street View feature unveiled in 2007.

The company blamed overzealous engineers for creating software to collect sensitive data it had no intention of using and has promised to destroy the information as soon as it's legally permissible. Aside from the lawsuits consolidated in Ware's courtroom, the company is the target of government investigations in the United States and abroad.

The Federal Trade Commission, for instance, criticized Google in 2010 for collecting potentially sensitive information over unsecured wireless networks for several years before realizing it. But the FTC said it was satisfied that Google improved its internal privacy controls, including privacy training for all 23,000 of the company's employees.

A Federal Communications Commission probe is still ongoing.

Tech security spending to rise in wake of attacks

Big companies and government agencies likely will have to rethink their approach to tech security in the wake of the disbanding of hacktivist group LulzSec, security analysts say.

Spending on information technology security already is growing faster than spending on general technology. And corporate and government tech buyers will have to dole out even more to defend against profit-minded cyberthieves and spies looking to swipe state and corporate secrets.

In fact, global spending on security products and services is expected to reach $71 billion by 2014, up from $55 billion today, according to Lawrence Pingree, research director for Gartner.

The recent hacking escapades of LulzSec underscore how hacktivists, motivated by the desire to express an ideology, have shaped a new kind of threat that's gaining steam.

• STORY: Businesses, governments, people caught in hacker crossfire

• STORY: LulzSec says it's disbanding

"We're seeing loose communities of like-mind people combine their abilities and harness the power of crowds," says Jonthan Penn, strategy analyst at Forrester Research. "This is the dark side of the same kinds of things we're seeing support the popular uprising in the Middle East."

Saturday, LulzSec cut short cyberattacks that included a burst of hacks following the June 21 arrest of 19-year-old Ryan Cleary of Essex, England, accused of operating the group's communications server.

Over a 50-day period the gang disrupted websites and stole data from the likes Sony, PBS and Fox and Nintendo as well as agencies ranging from the FBI and CIA to the Brazilian government and Arizona Department of Public Safety. Then as abruptly as it arrived, LulzSec closed up shop."LulzSec disintegrated because they are afraid," says Luis Corrons, research director of PandaLabs. "This case is really important for law enforcement agencies, as they cannot afford to have criminals running free after so much damage has been done."

If captured and convicted, LulzSec members likely will face stiff sentences, says Josh Shaul, chief technology officer of Application Security. But members appear to be dispersed around the globe, making jurisdiction complex. "It is difficult to pinpoint a single person or group of individuals who may be responsible," says John D'Arcy, information technology professor at University of Notre Dame.

Whatever happens, LulzSec is expected to help tech security suppliers gain a more sympathetic ear from prospective customers. Penn says LulzSec's spree heightens the concerns raised by the celebrated case of U.S. Army Private Bradley Manning, who is being prosecuted for releasing Pentagon and U.S. embassy documents to the anti-secrecy group, Wikileaks.

Security companies remind tech buyers that in addition to new hardware and software, they need to be "educated on the potential repercussions of a data breach," says Pat Clawson, CEO of security firm Lumension. "Without education, we will never gain any ground."

Tablet computer, e-reader ownership explodes in U.S.

NEW YORK — A study finds that 12% of U.S. households now own a reading device for electronic books, such as Amazon's Kindle.

That's three times the number of households that owned an e-reader just a year ago, pointing to rapid acceptance.

The phone survey published Monday was conducted in April and May by the Pew Internet and American Life Project.

Prices for e-readers have fallen rapidly over the past year. Barnes & Noble's Nook is growing as a competitor to the Kindle. The cheapest models are now available for just above $100.