Facebook Settles Sponsored Stories Lawsuit for $10 Million

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facebook settlement sponsored storiesOver the weekend, news broke that Facebook has agreed to pay $10 million in order to settle a lawsuit related to Sponsored Stories. The five Facebook users that initiated the lawsuit alleged that the social network had violated California law by broadcasting their Facebook activities for profit. The settlement agreement, which will require Facebook to donate $10 million to a charity, still requires the judge’s approval.

Considering that the prosecution had been trying to consolidate many cases into one class action lawsuit, settling the case for $10 million was the prudent course of action for Facebook. If the class action lawsuit had proceeded, it is estimated that one out of every three Americans could have been involved, and the total damages for the world’s largest social network could have exceeded $15 billion.

U.S. District Judge Lucy Koh stated that the plaintiffs had demonstrated that Facebook had inappropriately used their names and photographs in a manner that could cause economic injury to the plaintiffs. Judge Koh said:

“California has long recognized a right to protect one’s name and likeness against appropriation by others for their advantage.”

Facebook’s defense has been that its users are considered to be celebrities among their network of friends, and, therefore, they are not protected by certain privacy laws that protect non-celebrities. However, a recent article in The Stanford Law Review indicated that treating ordinary people as “celebrities” within their social networks would have a negative impact on privacy rights:

“If courts are willing to find that nontraditional subjects (such as Facebook users) are public figures in novel contexts (such as social media websites), First Amendment and newsworthiness protections likely will become more vigorous as individual privacy rights weaken. Warren and Brandeis’s model of privacy rights, intended to prevent media attention to all but the most public figures, will have little application to all but the most private individuals.”

Recently, several Facebook executives indicated that Sponsored Stories are a huge profit center for the social network. COO Sheryl Sandberg indicated the ROI on Sponsored Stories ads are two to three times greater than typical online advertising. Facebook CEO Mark Zuckerberg said:

“Nothing influences people more than a recommendation of a friend,” and that Sponsored Stories are the “Holy Grail of advertising.”

While settling the case and reducing the likelihood of a large class action lawsuit was the wisest business decision, Facebook shareholders may be upset to learn that the profitable Sponsored Stories could become a litigation center, rather than a high ROI profit center. When contacted by various news agencies regarding the recent settlement, Facebook declined to comment.

Sources Include: Reuters, Stanford Law Review, & MSNBC
Image Credit: Shutterstock

David Angotti

David Angotti

After successfully founding and exiting an educational startup in 2009, I began helping companies with business development, search engine marketing (SEM), search engine optimization (SEO),... Read Full Bio
David Angotti
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  • Brad Broekema

    Wow, this will be a huge blow to Facebook’s profits in my opinion! Those sponsored stories have an amazing conversion ratio and whoever started them is a marketing genius. I can understand why some might be upset but at the same time they chose to like that page. It’s not like Facebook chose someone at random and used their image to promote a company, people need to lighten up. If they are so worried about it just give up social media all together. Your receiving a free service, beggars can’t be choosers!

    • Norm

      I have to disagree Brad. I think you are confusing bought and paid for with free. Facebook is paid for by advertisers and investors. User privacy needs to be respected and protected more then ever. Choosing to like a page is not the same as choosing to have my actions used as an advertisement. Now if they want to pay me to be a spokesperson for their product, then show me the opt in button. Until then, I am not giving them permission to advertise my actions.

  • Sammie Clemmons

    Interesting– it seems that Facebook has already stopped doing this in anticipation of the outcome of this trial– which probably already has affecting their income.

    Facebook does “push the envelope”– I especially do not like when it posts that I read certain stories on Yahoo– and i have even seen it post about people watching certain videos that their wives might not be happy about. Yes, people opt-in, but at times I don’t feel they make it clear enough how your information will be used.

    Free service or not, Facebook is taking a beating because of some of these practices.