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Facebook's $20M 'Sponsored Stories' Settlement Survives Challenge

By Casey C. Sullivan, Esq. on January 08, 2016 | Last updated on March 21, 2019

If you signed into Facebook a few years ago, you were likely to see one of the social network's "Sponsored Stories," which repurposed user's names and images -- including children's likenesses -- for advertisements. "Sponsored Stories" led to a class action lawsuit against Facebook and a $20 million settlement.

Public interest groups sued, saying the settlement did little to nothing to protect consumer and children's rights. Indeed, they argue that the terms of the settlement are against California law. But even if it might, the Ninth Circuit ruled on Wednesday, that's not reason enough to reject the settlement.

Sponsored Stories and Kids' Faces

Facebook's Sponsored Stories sought to cash in on the idea that consumers are much more likely to purchase a product or service their friends recommend. So, instead of advertising a 2-for-1 donut deal at Johnny's Bakery, Facebook Sponsored Stories might show the photo and name of your Facebook-friend Lee, next to the phrase "best donut of my life" and a link to Johnny's. Except that Lee's information would have been used without compensation, notification, or the ability to opt-out. And, sometimes Lee was a seven-year old.

Consumers claimed the ads were a violation of their privacy; child advocates objected to the use of kids' images and names without parental permission. A class action was filed against Facebook in 2011. Two years later it was settled. Facebook agreed to pay $15 to each class member (plus attorney's fees), pay money to consumer protection groups, and make change to its terms and conditions.

Facebook ended Sponsored Stories in 2014, but still continues to use user information in advertisements.

Court Had Discretion to Approve Even Questionable Settlements

Several objectors sued to halt the settlement. Many of their claims involved attorney's fees, but some were more substantive: that the settlement authorizes continued violations of law. Groups such as Public Citizen argue that the new terms and conditions Facebook instituted as part of the settlement still allow the company to use minors' images, in violation of parental consent laws in California, Florida, New York, Oklahoma, Tennessee, Virginia, and Wisconsin, according to Ars Technica.

The Ninth Circuit easily rejected those arguments, however, dismissing challenges to the settlement on Wednesday. Potential violations of the law are just that, the Ninth explained -- potential. They are not certain and a district court is allowed to approve of a settlement when faced with uncertainty.

In a short memorandum opinion, the court explained that "It is not clear whether Facebook's use of minors' names and likenesses in Sponsored Stories violated California law." Nor is it clear that the settlement violates state law, the court said. But, "the district court did not abuse its discretion in approving the settlement in the face of this uncertainty."

There's no word yet if objectors will seek en banc review.

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