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Facebook Settles in California Lawsuit Over Advertising

Facebook has settled with a group of five users who sued over the use of their names, "likes", and images in Facebook's "Sponsored Story" advertising, which derives a user's friends' likes of advertiser pages to create an endorsed advertisement for that product.

Facebook has settled a lawsuit regarding its “Sponsored Stories” ad feature, agreeing to allow users to have more control over the use of their personal information. The monetary value of the changes, according to an economist hired by the plaintiffs, is roughly $103 million, but Facebook will pay just over $20 million to settle the case, according to court documents filed on Wednesday.

Sponsored Stories are advertisements that appear on a user’s page and generally consist of one of their friends’ names, profile picture, and a claim that the friend “likes” the advertiser. Five Facebook users filed a class-action lawsuit against the social networking giant, saying that it violates California law by publicizing other users’ “likes” without paying them or offering a way to opt out of the service. Potentially, had the class-action status of the lawsuit been granted, Facebook would have faced over 100 million potential plaintiffs.

The settlement agreement, filed on Wednesday, requires that Facebook members will be able to control what content is available for use by the Sponsored Stories. Facebook agreed to keep these changes, among others, for a minimum of two years. The company has also agreed to pay $10 million to organizations dedicated to educating safe use of social networking; some groups set to receive money include the Electronic Frontier Foundation and Stanford Law School’s Center for Internet and Society. An additional $10 million will be paid by Facebook for the plaintiff attorney’s fees.

This settlement has to be approved by U.S. District Judge Lucy Koh in San Jose, who will weigh up whether the terms adequately benefit the members of the class-action suit. Koh had said that the plaintiffs had shown that economic injury could result from Facebook’s use of their names, photographs, and likenesses.

During the course of the lawsuit, Facebook’s founder and Chief Executive, Mark Zuckerberg, was quoted as saying that trusted referrals were the “Holy Grail” of advertising. In addition, the suit cited comments from Facebook COO Sheryl Sandberg who said that the value of the Sponsored Story advertisements were at least two to three times the value of a standard ad without a friend’s endorsement.

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