June 21, 2012, 4:11 PM

Facebook agrees to modify Sponsored Stories ads

A proposed court settlement would give Facebook users more control of ad content.

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Facebook users will have more say in how their personal information and images are used in the social network’s “Sponsored Stories” ads under the terms of a proposed court settlement, according to documents filed in the U.S. District Court for the Northern District of California, San Jose Division.

If approved by the court, the settlement would cost Facebook Inc. more than $100 million in ad revenue plus millions of dollars in plaintiffs’ attorney’s fees, according to copies of court documents reviewed by Internet Retailer. The proposed still be must be approved by U.S. District Judge Lucy Koh in San Jose, CA.

In the class action case, Angel Fraley, et al., v. Facebook Inc., the plaintiffs contend that Facebook used their names and likenesses without prior consent in Sponsored Stories ads shown to their friends and family on Facebook.com. Sponsored Stories by advertisers such as The Coca-Cola Co., have included the names and images of Facebook users who have Liked the advertiser on Facebook.

One of the members of the class action, James H. Duval, appeared in a Sponsored Stories ad placed by Coca-Cola eight weeks after he clicked the Like button to show his appreciation of the soft drink company, according to the court documents. But at no point did Facebook seek Duval’s content to be in the ad, nor was Duval paid for his appearance, the court documents say. The documents also note that Duval was under 18 at the time of the ad appearance.

Following more than a year of litigation, plaintiffs and Facebook entered into mediation and reached a proposed settlement, according to the court documents.

The settlement includes changes to Facebook’s web site, to remain in place at least two years, that will make it “clear to all persons with Facebook accounts and the parents or legal guardians of minor users that their names and likenesses may be used in Sponsored Stories ads.”

The settlement also increases the ability of users and parents to control the extent to which their actions may be used in Sponsored Stories. This includes a revision of Facebook’s terms to clarify that users will be able to directly control actions they take to become featured in Sponsored Stories ads, and that users under 18 years of age must show they have received parental consent to be featured in the ads.

The changes to Facebook’s terms regarding Sponsored Stories ads were valued at $103.2 million, based on an analysis included in court documents of revenue generated by the ads by Fernando Torres, an economist retained by the plaintiffs. The documents did not provide further details about the value of the ads.

Facebook has agreed to pay the plaintiffs up to $10 million in attorney’s fees and $300,000 in administrative costs, according to the court documents.

A spokesman for Facebook declines to comment.

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