Bloomberg News

Facebook Lawsuit Against Ads Given Go-Ahead by U.S. Judge

December 21, 2011

Dec. 19 (Bloomberg) -- Facebook Inc., the world’s most used social-networking service, can be sued by people who claim showing advertisements that their friends apparently like violates a California law regarding commercial endorsements.

U.S. District Judge Lucy Koh in San Jose rejected Facebook’s bid to dismiss the lawsuit on Dec. 16, ruling the plaintiffs may pursue claims that the company’s sponsored ads violate state law and are fraudulent. Koh granted Facebook’s request to dismiss a claim that it unjustly enriched itself with the sponsored ads.

Facebook earns revenue primarily through the sale of targeted advertising that appears on members’ Facebook pages, including so-called sponsored stories, which the Palo Alto, California-based company started Jan. 25. A sponsored story is a paid ad consisting of another friend’s name and profile picture and claiming the person likes the advertiser. The plaintiffs claim it’s an unauthorized use of their names and likenesses and that they deserve compensation.

The “plaintiffs have articulated a coherent theory of how they were economically injured by the misappropriation of their names, photographs and likeness,” Koh wrote.

Facebook’s press office didn’t immediately respond to an e- mailed request for comment, sent after normal business hours in California.

Facebook’s revenue will climb to as much as $6.9 billion in 2012 from $4.27 billion this year, according to estimates by EMarketer Inc., a New York-based research company. Almost 90 percent of 2011 sales will come from advertising revenue, EMarketer estimates.

‘Newsworthiness’ Exemption

California’s Right of Publicity Statute prohibits the non- consensual use of another person’s name, voice, signature, photograph or likeness for advertising.

Facebook claimed it was immune under the law’s “newsworthiness” exemption, which doesn’t require consent. The plaintiffs are public figures to their friends and expressions of consumer opinion are generally newsworthy, Facebook said.

The plaintiffs, in their statement of claim, cited Facebook Chief Executive Officer Mark Zuckerberg saying that “nothing influences people more than a recommendation of a friend” and a “trusted referral is the Holy Grail of advertising.”

On average, each member of Facebook has 130 friends, and Facebook Chief Operating Officer Sheryl Sandberg said “making your customers your marketers” is the “goal we’ve been searching for,” according to the statement of claim.

The case is: Fraley v. Facebook Inc. 11-cv-01726. U.S. District Court, Northern District of California (San Jose)

--Editors: Dave McCombs, Terje Langeland

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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