The people had alleged that the social network service violated their rights to control the use of their own names, photographs and likenesses by publicising their 'likes' of certain advertisers in its 'sponsored stories' feature without offering them scope to opt out or paying them for Facebook's use of their personas.
The settlement in Fraley et al v. Facebook, Inc. (Case CV-11-01726) was apparently reached last month but came to public notice this weekend. Given Facebook's somewhat cavalier approach to privacy and other law the settlement isn't discernible on the corporate site. A class certification hearing was apparently held on 31 May, with federal judge Lucy Koh having refused to dismiss the suit - launched in April 2011 - for want of standing. That is in contrast with the tendency of US federal courts to dismiss privacy actions on the basis that the plaintiffs haven't been able to prove they'd been harmed by alleged privacy violations.
In December last year Koh indicated that "Plaintiffs have adequately alleged unlawful, unfair and fraudulent conduct". She noted that "California has long recognised a right to protect one's name and likeness against appropriation by others for their advantage," and that the value of a "sponsored story" advertisement was considered by Facebook to be at least twice and up to three times the value of a standard Facebook ad without a friend endorsement. Interestingly the plaintiffs were represented by law firms that have a greater profile for dealing with automobile and workplace injury and employment disputes than intellectual property or publicity rights law.
The plaintiffs had alleged that -
1 Facebook violated California's right of publicity statute (Civil Code s 3344), which protects against misappropriation of a person's identity for monetary gain;
2 the Sponsored Stories, being "unlawful, fraudulent, and unfair", violated California's unfair competition law; and
3 Facebook's actions constituted unjust enrichment.Facebook contested those three causes of action, arguing that -
1 the plaintiffs lacked standing because they had failed to allege any actual monetary/commercial injury (because their names/likenesses lacked commercial value);
2 s 230 of the Communications Decency Act (CDA) - broadly equivalent to safe harbour provisions in Australian law - protected Facebook because the Sponsored Stories constituted mere "editorial functions";
3 Facebook's actions fell within the right of publicity law's exception for "newsworthy" content;
4 the unfair competition claims failed because Facebook does not charge its users; and
5 California does not recognize an unjust enrichment claim.Koh ruled in favor of the plaintiffs apart from dismissing the unjust enrichment claim. She found that the plaintiffs did have the standing on the basis of the alleged violation of the Californian publicity rights statute, held to constitute a concrete and particularized injury. The court rejected Facebook's claim for dismissal under s 230 of the CDA because Facebook created - at least in part - the Sponsored Stories, a creation above and beyond mere editorial functions.
Facebook argued that the Sponsored Stories were "newsworthy" within the meaning of the publicity rights statute because users are "public figures to their friends". That argument did not find favour with the court; Koh held that the newsworthiness exemption in the statute did not apply to "commercial rather than journalistic" uses. (Interestingly the court noted in obiter that the fact that users might be "celebrities to their friends" was sufficient to establish that the users had commercially exploitable names and likenesses protected under the statute.) The court also ruled for the plaintiffs with respect to Facebook's argument that the plaintiffs consented to the Sponsored Stories by agreement to Facebook's terms of service, and ruled that Facebook's profiting from the Sponsored Stories sufficed to show actual damages (at least at the motion to dismiss stage).
Koh rejected Facebook's challenge to the unfair competition claim, but dismissed the unjust enrichment claim. She held that unjust enrichment is only a remedy or measure of damages on another claim rather than an independent cause of action in California. On that basis the right of publicity and the unfair competition claims survived.
The US$10 million settlement seems a cheap way to buff Facebook's profile (and head off extension of the suit to several million consumers), particularly amid criticism - in my view justified - that prices paid at its IPO were unrealistically high and that the company doesn't embody privacy best practice.