Facebook Will Pay $10 Million to Settle 'Sponsored Stories' Lawsuit

After being accused of violating its users’ rights to control how their names, photographs and likenesses are used, Facebook has agreed to pay $10 million to charity.

Facebook was sued by a group of five users who alleged that the site’s “Sponsored Stories” violated California law. If you’re even a somewhat savvy Facebook browser, you’ve probably noticed Sponsored Stories popping up on the side of your news feed. They’re advertisements that appear on the site containing the name and profile picture of a user’s Facebook friend, stating that said friend “likes” the item being advertised.

Not only is this often not true, but Facebook also wasn’t paying users being used in the ads as referrals or allowing them to opt out.

Court documents quote Facebook COO Sheryl Sandberg saying that the value of a friend-endorsed Sponsored Story has two to three times more value than a standard Facebook.com ad. Mark Zuckerberg was quoted as referring to a trusted referral as the “Holy Grail” of advertising.

US District Judge Lucy Koh found that the plaintiffs proved that Facebook could cause economic injury by using people’s names, likenesses and pictures in Sponsored Stories.

With its recent IPO drama, the expansion of its Menlo Park headquarters, the purchase of Instagram and rumors of upcoming purchases and launches swirling, Facebook surely would have rather held on to the $10 million settlement. But the company should consider itself lucky—previous court documents state that the proposed class-action lawsuit could have included just about one of every three Americans, leading to a possible payout of billions of dollars.

Although the lawsuit was actually settled last month, it was just made public over the weekend with the release of court documents.