Facebook Inc (NASDAQ:FB) To Pay $10 Million For Violating California law
Facebook Inc (NASDAQ:FB) shares are trading slightly lower in the pre-market session after posting a 10.74% gain in the previous week, which was its first weekly gain after going public in mid May.
The company has reached an agreement to pay $10 million to charity to settle a lawsuit that blamed the world’s biggest social networking website of violating users’ rights to control the use of their own names, photographs and likenesses, as per court documents made public over the weekend.
The lawsuit, filed by five Facebook members, claimed that the social networking site breached California law by publicizing users’ “likes” of certain advertisers on its “Sponsored Stories” feature without paying them or giving them a way to opt out, the documents said.
A “Sponsored Story” represents an advertisement that appears on a member’s Facebook page and generally consists of another friend’s name, profile picture and an assertion that the person “likes” the advertiser.
The settlement was made last month but made public this weekend.
In the lawsuit, Facebook Chief Executive Mark Zuckerberg was quoted as saying that a trusted referral was the “Holy Grail” of advertising.
In addition, the lawsuit cited comments from Facebook chief operating officer Sheryl Sandberg, saying that the value of a “Sponsored Story” advertisement was at least twice and up to three times the value of a standard Facebook.com ad without a friend endorsement.
U.S. District Judge Lucy Koh said the plaintiffs had shown economic injury could occur through Facebook’s use of their names, photographs and likenesses.
“California has long recognized a right to protect one’s name and likeness against appropriation by others for their advantage,” Koh wrote.
The settlement arrangement is known as a cy-pres settlement, meaning the settlement funds can go to charity.