Facebook settles ad privacy lawsuit

Facebook has agreed to pay $10m (£6.4m) to a charity to settle a lawsuit that alleged the site was violating user privacy with its sponsored stories ads format.

Facebook

The class action lawsuit, which was brought by five Facebook users, said the social network was violating California state law by advertising when they had Liked certain brands, without giving them the option to opt out.

The advertisement then appears as a sponsored story, which featured users’ names, profile pictures and their “endorsement” of that advertiser.

The suit claimed Facebook’s terms of use “mislead its users into believing they can prohibit the use of their name and profile picture in advertisements”. It added that users could suffer “economic injury” through Facebook’s use of their names, likenesses and photos.

A judge still needs to approve the “cy-pres” settlement, which means the funds go to a charity rather than the five individuals involved.

Had the case succeeded, Facebook may have had to change the format of its sponsored stories format to make it easier for users to opt out, or drop it altogether. However, it could set a precedent for other groups to bring about more action against Facebook’s advertising practices, as previous suits have been thrown out or failed.

In the lawsuit, which was settled last month but only made public this weekend, Facebook founder and chief executive Mark Zuckerberg is quoted as saying that a trust referral by a user is the “holy grail” of advertising. Sponsored stories are said to achieve engagement rates up to three times the value of a standard ad on the site.

Businesses need to build trust to encourage consumers to share their information online, according to research released today (18 June) by the Direct Marketing Association (DMA).

About three in five (58%) people say “trust” is the most important factor in deciding whether to share information, with 85% saying they would prefer to retain control of their information and then exchange it for benefits or services when it suits them.

Chris Combemale, chief executive of the DMA, says: “The balance of power is now tilted towards consumers. They alone have the ability to choose who they share their information with, so it’s down to brands to give them a compelling reason to do so.

“This piece of DMA research highlights that unless brands are trusted, provide people with the opportunity to control how their data is used and suitably reward consumers for sharing it then they will be left behind in the digital economy.”

Separately, Facebook’s chief technology officer Bret Taylor announced this weekend he is to leave the company to launch a startup with Google App Engine founder Kevin Gibbs. Facebook’s shares closed at $30.01 on Friday (15 June), down 21% since the company first floated on the stock market.

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