Facebook Agrees to Pay $10 Million to Charity to Settle Lawsuit over User’s Rights

Though the settlement over the proposed class-action lawsuit was reached last month, it was made public this weekend. According to previous court documents, the class-action lawsuit against Facebook, brought by five Facebook members had alleged that the networking site had violated California law by publicizing the “likes” of certain advertisers on its “Sponsored Stories” feature without paying them or providing a way to opt out. The proposed lawsuit could have included nearly one of every three Americans, with billions of dollars in damages. The lawsuit quoted Mark Zuckerberg as saying that a trusted referral was the “Holy Grail” of advertising, and the plaintiffs disliked the use of their personal “likes” in “Sponsored Stories.”

“Sponsored Stories” on Facebook are advertisements that appear on the Facebook pages of members and consists of another friend’s profile, picture, name and assertion that the person “likes” the advertiser. The lawsuit also cited comments from Facebook chief operating officer Sheryl Sandberg that mentioned the value of a “Sponsored Story” advertisement was at least twice or thrice the value of a standard Facebook.com ad.

U.S. District Judge Lucy Koh held that the plaintiffs had sufficiently shown the likelihood of economic injury through Facebook’s use of their names, photographs, and likenesses. Judge Koh said, “California has long recognized a right to protect one’s name and likeness against appropriation by others for their advantage.”

The settlement falls under the category of a cy-press settlement, which means that the settlement funds would go to charity. The case in U.S. District Court, Northern District of California is Angel Fraley et al., individually and on behalf of all others similarly situated vs. Facebook Inc., 11-cv-1726.

On Friday, Facebook shares closed at $30.01, down by 21 percent from its initial offering.