Facebook Pays Out and Settles “Sponsored Stories” Lawsuit

by Jordan Richardson on June 18, 2012

Facebook Inc. will pay out nearly $10 million to charity in a settlement over a lawsuit brought forth by five Facebook users. The users alleged that the social networking giant violated California state law by publicizing “likes” of certain advertisers in its “Sponsored Stories” feature without offering payment or the option to opt out.

The lawsuit accused Facebook of violating users’ rights to maintain control over the use of their own names, likenesses and photographs.

Facebook’s “Sponsored Stories” are advertisements that feature on a user’s Facebook page and consists typically of a “friend’s” user name, photograph and the affirmation that said “friend” has approved of or “liked” the advertisement in question. Mark Zuckerberg has been a well-known fan of so-called referral advertisements and “Sponsored Stories” have provided ways for him to bring those notions to fruition on the site. According to Zuckerberg, “Sponsored Stories” are the “Holy Grail” of advertising.

Facebook chief operating officer Sheryl Sandberg was cited in the lawsuit as saying that “Sponsored Stories” are valued at least twice or even three times the value of a standard advertisement on the Facebook site on the strength of the implied “friend” endorsement.

The settlement was actually made last month, but the terms and conditions of it weren’t made public until now.

“California has long recognized a right to protect one’s name and likeness against appropriation by others for their advantage,” wrote U.S. District Judge Lucy Koh.

Much of the issue, at least from a social standpoint, appears to come from the notion of an implied endorsement. People have “liked” all sorts of pages as a joke and have wound up “endorsing” the product, service or person associated with the page because of “Sponsored Stories.”

One particular case is that of Nick Bergus. He posted a link to a 55-gallon drum of “Passion Natural Water-Based Lubricant” on his Facebook wall as a joke (if we take his word for it, of course). The “fun” stopped being fun when Bergus found his photograph posted front and centre in advertisements for the lubricant. Wrote Bergus: “Other people start reporting that they’re seeing it, too. A fellow roller derby referee. A former employee of a magazine I still write for. My co-worker’s wife. They’re not seeing just once, but regularly. Said one friend: ‘It has shown up as one on mine every single time I log in.'”

The settlement is known as cy-près, which essentially means that Facebook can pay the funds out to charity rather than the five individuals who filed the suit. Traditionally, cy-près has been used to “promote the interests” of members of a class action lawsuit rather than simply lining their respective pockets.

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Written by: Jordan Richardson. www.digitcom.ca. Follow TheTelecomBlog.com by: RSSTwitterFacebook, or YouTube.

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