Facebook, Inc., operator of Facebook.com, has agreed to pay $10 million to charity to settle a lawsuit regarding its use of “Sponsored Stories” to market third-party products and services on its website. A “Sponsored Story” is an advertisement that appears on a Facebook user’s home page, indicating that one of that user’s Facebook friends has “liked” a particular advertiser.

As you may recall from our previous alert, Facebook users claimed that this use of their names and images violated, among other things, the California Right of Publicity Statute, their common law right of publicity, and the California Unfair Competition Law. Despite Facebook’s attempts to argue that the plaintiffs had no standing to bring their claims, the judge agreed with the plaintiffs’ assertion that they had standing to bring the claims based on the economic value of their profile information. The judge stated that “California has long recognized a right to protect one’s name and likeness against appropriation” by a third party for financial gain. Earlier cases have recognized the value of personal information and even Mark Zuckerberg, Facebook CEO, has called the use of friend endorsements the “Holy Grail of advertising. And, in somewhat saintly fashion, Facebook has now agreed to pay $10 million to charity to settle charges that it did not have permission to use the “Holy Grail.”

Website operators should be aware of this case as it provides guidance on the way that a user’s information may be used online. Further, it may provides an incentive for publishers to ensure that their Terms of Use provide them with flexibility to use information such as a user’s name and image in a variety of ways.

Arent Fox is continuing to monitor this case, as well as other cases involving advertising and website Terms of Use. Please contact Anthony V. Lupo, Sarah E. Bruno, or Eva J. Pulliam with questions.