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The details of last month’s $10 million settlement between Facebook, Inc. and five Facebook users were finally made public this weekend after the release of court documents.  Facebook will donate $10 million to charity to settle a lawsuit based on alleged violations of California privacy laws.

The lawsuit, brought by five Facebook users, alleged that Facebook violated their rights by using their names, likenesses, and photographs without providing compensation or a way to opt-out of Facebook’s use of their identities.  At issue in the complaint was a Facebook feature known as a “Sponsored Story,” an advertisement that appears on Facebook members’ homepages and advertises products seemingly endorsed by members’ Facebook friends.

The experience of Facebook member Nick Bergus provides an illustrative example.  As reported by <a href="http://PCMag.com/">PCMag.com</a>, Bergus’ profile picture was featured in an advertisement for lubricant after he posted a link on his Facebook Wall for a 55-gallon drum of “Passion Natural Water-Based Lubricant.”  After the post was picked up by Facebook algorithms, Bergus’ profile picture began to appear alongside advertisements for the lubricant on his Facebook friends’ home pages.  The “Sponsored Story” advertisement not only featured Bergus’ profile picture, but also showed him as “Liking” the lubricant.

According to Sheryl Sandberg, Facebook CEO, the advertisement value of "Sponsored Stories" is two or three times that of typical advertisements because these special advertisements sell products with the illusion of a Facebook friend’s personal endorsement.  In other words, these advertisements sell by virtual word of mouth.

As reported by Reuters, United States District Judge Lucy Koh wrote that “California has long recognized a right to protect one’s name and likeness against appropriation by others for their advantage.”  In this instance the complaint filed by the five Facebook members was a proposed class action that sought to include close to one in every three Americans.

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<em>The case is Angel Fraley et al. v. Facebook, Inc., 11-cv-1726, and was filed in the Northern District of California</em>

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Facebook Settlement Made Public