Facebook Settles Huge 20 Million Dollar Lawsuit

Peter Roesler, President - Web Marketing Pros

By Peter Roesler

President, Web Marketing Pros

The hits – both financial and in lost prestige – just keep on coming for beleaguered Facebook. Reuters news agency reported on June 21, 2012 Facebook has agreed to allow users more control over how their personal information is used in its “Sponsored Story” advertising feature.

Five Facebook members from California sued Facebook in federal court, saying it violated California law by publicizing users’ “likes” of certain advertisers without paying them or giving them a way to opt out. Part of the suit sought class action status, which involved over 100 million potential class members.

The suit was settled out of court by Facebook agreeing to stop the practice, pay $10 million in legal fees to the plaintiffs’ attorneys, and $10 million to charity.

A Facebook Sponsored Story is an advertisement which appears on a member’s Facebook page and often consists of another friend’s name, profile picture and an assertion the person “likes” the advertiser.

Facebook was doing this automatically, without first seeking the permission of the member whose name, likeness, and profile were being used by an advertiser to promote their product, for which the advertiser paid Facebook, but not the member who was being used in the Sponsored Story.

The $10 million to charity will be devoted to educating people about how to use social networking technology safely. Groups designated to receive the money include the Electronic Frontier Foundation and the Center for Internet and Society at Stanford Law School, according to court documents reported by Reuters. A California district judge must still approve the settlement.

Further in court documents, Facebook Chief Executive Mark Zuckerberg was quoted as saying a trusted referral was the “Holy Grail” of advertising.

Additionally, Facebook Chief Operating Officer Sheryl Sandberg was quoted as saying the value of a Sponsored Story advertisement was at least twice, and up to three times the value of a standard Facebook.com advertisement without a friend endorsement.

U.S. District Judge Lucy Koh, in San Jose, California said the plaintiffs had shown economic injury could occur through Facebook’s use of their names, photographs and likenesses. The case is in the U.S. District Court, Northern District of California.

The case further amplifies the constant tug of war between social media users who wish to maintain a low or non-existent profile, and the need for social media companies to capitalize on their membership and derive revenues from as many sources as possible since almost all social media companies do not charge membership fees.

It’s another case of whether or not the public which embraces social media is willing to give up some form of privacy for use of a free service.


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