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Facebook Settles 'Sponsored Stories' Lawsuit for $10M

By Andrew Chow, Esq. on June 18, 2012 | Last updated on March 21, 2019

Facebook has settled a lawsuit over its "Sponsored Stories" advertisements and will pay $10 million to charity, Reuters reports.

Five Facebook members sued the social-networking site for allegedly using their names and images in "Sponsored Story" advertisements without their consent. That violates California's "right to publicity" law, their federal lawsuit claimed.

In a "Sponsored Story," an ad for a product appears on a user's Facebook page. The ad also shows which of that user's friends "likes" the advertiser, and includes those friends' names and profile pictures.

Facebook's executives have touted the added value of seeing friends' "likes" in "Sponsored Story" advertisements, the plaintiffs' lawsuit alleged. Facebook CEO Mark Zuckerberg has called such trusted referrals as the "Holy Grail" of advertising; COO Sheryl Sandberg has stated that friend-endorsed ads are worth two to three times the value of a non-endorsed ad on Facebook.

Facebook tried to dismiss the suit last year, but a federal judge allowed it to proceed. The plaintiffs could show they were economically hurt by the use of their names and images, the judge said.

Under California's "right of publicity" law, a person or entity that knowingly uses another person's name, image, or likeness for commercial purposes without consent can be held liable for damages.

The plaintiffs wanted their Facebook "Sponsored Story" lawsuit to become a class action, which could have included some 100 million Americans and billions in potential damages, according to Reuters.

But in the Facebook settlement, the $10 million in damages will not go to Facebook users; rather, it will go to a charity that has not been disclosed. A legal principle known as cy pres allows funds to go to a charity when payments to the plaintiffs are not feasible.

The Facebook settlement was reached last month, but details were only disclosed over the weekend. Facebook declined to comment about the settlement, Reuters reports.

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