The Facebook Sponsored Stories Lawsuit & Why It’s a Big Deal

Quoting here from InsideFacebook:

Facebook today settled a proposed class action lawsuit that contested how the site uses names and images of users in its Sponsored Stories ad product.

The plaintiffs of Fraley et al v. Facebook, Inc. asserted that the social network’s new ad type turns users into spokespeople, and thus entitles them to compensation under California law. The company did not share terms of the settlement in court documents and representatives did not offer comment on the case. Had Facebook not settled, it might have risked what it sees as a major component of its future advertising business.

What’s this lawsuit about, anyways? Well, California has a Right of Publicity statute that explicitly forbids a company from using any other person’s name or likeness for advertising purposes without clear consent from the person being used. Facebook thought it was immune to this statute as a result of an exemption for topics that are considered newsworthy. Obviously, that argument didn’t work.

Sponsored stories have been around for nearly a year and a half now – they debuted in early 2011 – and many advertisers feel they are cheaper and have better CTR thank traditional Facebook ads. Last year, TBG Digital revealed that a test consisting of 2 billion impressions found that Sponsored Stories received a 46% better CTR than traditional Facebook ads. Coupled with a 20% lower CPC, you can see why Sponsored Stories are a big deal. You’ll find more on the original TBG Digital study here.

Now that Facebook is a public company, one can only expect greater scrutiny towards the world’s largest social network. I think it’s well-deserved, but lawyers should draw the line between breaches of the law (like this one) and simply going after the biggest target simply because it’s easier to hit.

 

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By jeremygoldman

social media pundit.

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