By Elizabeth Berman

Facebook, Inc. was sued in a class action last year over one of its advertising practices called “Sponsored Stories,” which typically consist of a Facebook Friend’s name, profile picture, and an assertion that the person (your Facebook Friend) “likes” an advertiser, coupled with the advertiser’s logo, featured on your Facebook page or News Feed. The idea is that the target of the advertisement (i.e., you) will be more influenced by the company’s advertisement because someone in your network (i.e., your Friend) “likes” that company. The disconnect is that “liking” a page on Facebook does not necessarily mean the user likes that company in the normal sense of the word. For example, one could “like” a page in order to get some promotional benefit from the company or learn more information about the company or its product.

The named plaintiffs, two of which are minors, alleged “Sponsored Stories” violated California’s Right of Publicity Statute, Civil Code § 3344; California’s Unfair Competition Law, Business & Professions Code § 17200, et seq. (“UCL”); and the common law doctrine of unjust enrichment. Generally, the plaintiffs alleged the way Sponsored Stories worked unlawfully misappropriated their names, photographs, likeness and identities for use in paid advertisements without their consent. Facebook moved to dismiss their claims, arguing lack of Article III standing, immunity under § 230 of the federal Communications Decency Act (“CDA”), and failure to state a claim upon which relief can be granted. Late last year, the California Northern District Court denied the motion except with respect to the unjust enrichment claim.

Notably, the District Court rejected Facebook’s argument that the plaintiffs lacked Article III standing, drawing a distinction between the plaintiffs’ allegations and other recent District Court privacy cases coming to the opposite conclusion under similar facts (Low v. LinkedIn, iPhone App Litig., and LaCourt v. Specific Media, In re Doubleclick, Cohen v. Facebook), on the grounds that the plaintiffs’ allegations were sufficiently particular with regard with what information Facebook used, how it used it, to whom their information was published, how they were economically injured by the use of their information to advertise to others (versus using one’s information to advertise to oneself), and how their information inherently had some commercial value (because a Sponsored Story ad was viewed by Facebook as more valuable, and therefore more expensive, than a generic ad).

The case did not proceed beyond the plaintiffs’ allegations to class certification or summary judgment because, before the hearing on class certification was held, the parties reached a settlement in or around May, 2012. The plaintiffs filed a motion for preliminary approval of the proposed class settlement, which calls for changes to Facebook’s website and terms of use and additional control functions over one’s appearance in a Sponsored Story. The settlement includes other terms applicable to minors, such as a requirement that minors represent that they have received parental consent before they can be featured in a Sponsored Story. Facebook also agreed to bear the costs for class notice and settlement administration, in addition to paying $10 million in cy pres relief to the class and almost $40,000 to three class representatives. The proposed class is nationwide, and there is also a proposed subclass consisting of minors.

A motion to intervene and oppose the motion for preliminary approval was filed in June, 2012 on behalf of the minor class members, whose interests are also represented in another related class action against Facebook and would be covered by the proposed release in the Fraley settlement. The minors are objecting for several reasons, including for example (1) the proposed settlement would not address the fundamental issue that minors lack the capacity to provide consent, and simply asking them to confirm they have parental consent is insufficient, and (2) that the Fraley action is limited to Sponsored Stories, whereas their related action, C.M.D. v. Facebook, challenges the use of children in advertising more generally. The intervention has the potential to blow up the proposed settlement and force the parties to start settlement discussions over again or proceed to class certification.

Both motions (for preliminary approval and intervention) are set to be heard on August 2, 2012.