Facebook settles 'Sponsored Stories' lawsuit for $10 million

IDG News Service - Facebook has settled a lawsuit in which it was alleged to have used the names and likeness of the plaintiffs without their prior consent in "Sponsored Stories" advertisements shown to their online friends on the social networking website, according to a motion filed by the plaintiffs in a federal court on Wednesday.

Facebook has also agreed to pay US$10 million that will go to social service organizations and advocacy groups including those that are focused on the protection and privacy of minor children in the context of social media.

The settlement relates to a class action lawsuit filed in U.S. District Court in California in 2011 by Angel Fraley and others in which they alleged that Sponsored Stories constitute "a new form of advertising which drafted millions of (Facebook members) as unpaid and unknowing spokepersons for various products," for which they were entitled to compensation under California law.

Facebook asked the court in May to take a hearing that month off the calendar as both sides prepared a motion for preliminary approval of a proposed settlement.

Under the terms of the settlement outlined in the filing on Wednesday, Facebook will give users and their parents greater control over the extent to which their or their children's actions may be used in Sponsored Stories, according to the filing before the U.S. District Court for the Northern District of California, San Jose division.

The social networking company will also introduce changes to its website to make it clear to all users and the parents or legal guardians of minor users that their information like names and likeness may be used in Sponsored Stories ads, thereby ensuring that Facebook has their consent to such uses.

The changes will remain for at least two years.

The settlement also plans for provisions for establishing consent of parents or legal guardians of users under 18 years to have the minors featured in Sponsored Stories. Users under 18 years will also have to represent that they have received parental consent to feature in Sponsored Stories ads.

Facebook was not immediately available for comment.

The company declined to comment on the settlement earlier this week, after there were reports that the company had agreed to settle for $10 million to be paid to charities through a fund set up for the purpose.

The settlement has to be still approved by the judge. The proposed settlement includes all persons in the U.S. who have or had a Facebook account at any time, and had their names, likeness and other information displayed in a Sponsored Story on or before the date of entry of the preliminary approval order.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com