Facebook Settles “Sponsored Stories” Litigation For $20 Million

Yesterday, a court in San Francisco approved settlement of potential class action litigation against Facebook over its Sponsored Stories program. Sponsored Stores are ads that include identification of users’ friends who’ve “liked” the advertiser.

Facebook has agreed to pay $20 million to end the case. The settlement was approved over various objections including the argument that minors’ privacy rights are not sufficiently protected under the terms of the settlement. Child advocates had wanted parental approval before minors’ content could be used commercially.

The essence of plaintiffs’ underlying claims was that Facebook had misappropriated users’ likenesses and content without consent. In the order approving settlement the judge expressed skepticism about the merits of many of plaintiffs’ claims and arguments.

Under the settlement, some users will receive very small payments ($15), lawyers will receive the bulk of the payments and Facebook will change its “Statement of Rights and Responsibilities” to provide users with more control over how their names and images are used in Sponsored Stories. (Most people do not read terms and conditions.)

According to Reuters, Facebook earned over $230 million on Sponsored Stories ads between January 2011 and August 2012.

Below are some skeptical excerpts from the judge’s order (embedded below):

If “Sponsored Stories” had undisputedly violated the law and represented the gross invasion of class members’ rights as characterized by the complaint, then the adequacy of the settlement would, of course, be viewed through a very different lens. Plaintiffs’ allegations and theories, however, remain largely untested, having only survived a motion to dismiss. Substantial barriers to recovery remained, not the least of which would be the requirement to demonstrate that the complained-of conduct caused cognizable harm …

Users knowingly choose to indicate that they “like” certain entities or activities on Facebook. Even if users have never read Facebook’s SSRs, they know that their “likes” typically will appear on the “newsfeeds” of their Facebook friends, subject to whatever limitations they have imposed through using privacy settings. Sponsored Stories, in Facebook’s view, does nothing more than take information users have already voluntarily disclosed to their “friends,” and sometimes redisplays it to the same persons, in a column that also contains more traditional paid advertising. While Facebook indisputably earns money from the Sponsored Stories program, it contends that its return is actually less than from available alternative types of advertising.

Regardless of the degree of benefit to Facebook, however, plaintiffs faced a substantial burden in showing they were injured by the Sponsored Stories. While plaintiffs pleaded a sufficient basis for injury to support constitutional standing, it is far from clear that they could ever have shown they were actually harmed in any meaningful way. Indeed, in seeking class certification and in attempting to quantify the value of the settlement’s injunctive relief, plaintiffs have repeatedly relied primarily on their argument that Facebook benefited, rather than that class members were harmed.

Plaintiffs also faced a substantial hurdle in proving a lack of consent, either express or implied.