Court allows class action against Facebook Inc. to proceed

Posted on: January 6th, 2012 by Steve Larson

A federal judge has allowed a class action to proceed against Facebook.  The complaint alleges that Facebook co-opts users as unpaid spokesmen for paid advertising and illegally profits when users sponsor products through “likes”.

The complaint alleges that Facebook violates California and federal laws with its “Sponsored Stories” feature, which uses the names, photos and other profile information of its members in sponsored advertisements.  The stories are triggered when members “like” a product or service, and the plaintiffs believe they are entitled to compensation under California law.

While Facebook’s own policies state that users can limit how their names and personal information are used by Facebook, users aren’t allowed to completely opt out of the social network’s commercial and sponsor-related content.

Pointing to its user terms of service as grounds for dismissal, Facebook claimed that it is immune from action as an “interactive computer service” and merely a conduit through which users pass their own information to friends.

U.S. District Judge Lucy Koh disagreed, however, citing a statement from Facebook’s own chief operating officer.

“Marketers have always known that the best recommendation comes from a friend,” COO Sheryl Sandberg said, according to the court.  “Making your customers your marketers” is “the elusive goal we’ve been searching for.”

This evidence supports the plaintiffs’ claim that “they have a right to be paid for their endorsements and can establish how much these endorsements are worth,” Judge Koh wrote.

“Members are unable to opt out of the Sponsored Stories service, which was introduced after plaintiffs became Facebook members, and instructions on how to disable an individual post from appearing on friends’ news feeds or as a sponsored story are only available on a buried Help Center page, ” the 38-page decision states.

“The court finds plaintiffs have adequately alleged unfair, unlawful, and fraudulent conduct” under California’s Unfair Competition law, Judge Koh concluded.

Judge Koh dismissed unjust-enrichment claims against Facebook with prejudice, alluding to a recent decision from the state appeals court that unjust enrichment is a restitution claim, and not a cause of action in itself.