According to court documents released over the weekend, Facebook Inc. will pay $10 million to charity in settlement of a lawsuit that accused the site of violating users' rights to control use of their "names, photographs and likenesses."
According to the Daily Mail, five Facebook users in California brought the lawsuit that alleged the site violated state law by "publicizing users' 'likes' of certain advertisers on its 'sponsored stories' feature without paying the users or giving them the opportunity to opt out."
AP explains that a "Sponsored Story" is an advertisement that appears on a member's Facebook page and consists of another friend's name, profile picture with the statement that the person "likes" the advertiser.
The settlement was reached last month but was made public this weekend. According to Daily Mail, the ads in question began to be featured in early 2011, and the new court decision raises legal questions about a major source of ad revenue for Facebook.
AP reports that court documents revealed that the previously proposed class-action lawsuit, filed in federal court in San Jose, California, could have included nearly one of every three American and involved billions of dollars in damages.
According to court documents, Facebook Chief Executive Mark Zuckerberg, argued that a "trusted referral was the Holy Grail of advertising."
Court documents also mentioned comments from Facebook chief operating officer Sheryl Sandberg, who argued that the value of a "Sponsored Story" advertisement was at least "twice... the value of a standard Facebook.com ad without a friend endorsement."
According to AP, U.S. District Judge Lucy Koh, said that the plaintiffs had shown to the court's satisfaction that economic injury could occur through use of their "names, photographs and likenesses" by Facebook.
The settlement the court granted is termed a "Cy-pres settlement," Daily Mail explains. That means that the settlement funds can go to charity.
Facebook shares closed at $30.01 on Friday, down 21 per cent since the company's initial public offering last month, AP reports.
Facebook is facing several lawsuits from disgruntled shareholders.