Facebook will change ad service to settle lawsuit

In this photo illustration, a Facebook logo on a computer screen is seen through a magnifying glass held by a woman in Bern May 19, 2012. Picture taken May 19, 2012. Credit: Reuters/Thomas Hodel

Facebook Inc has agreed to allow users more control over how their personal information is used in its "Sponsored Stories" ad feature, part of a deal to resolve litigation against the social networking company.

The potential loss of revenue to Facebook resulting from the changes is the equivalent of about $103 million, in the opinion of one economist hired by the plaintiffs.

A "Sponsored Story" is an advertisement that appears on a member's Facebook page and generally consists of another friend's name, profile picture and an assertion that the person "likes" the advertiser.

Five Facebook members filed a lawsuit seeking class-action status against the social networking site, saying it violated California law by publicizing users' "likes" of certain advertisers without paying them or giving them a way to opt out.

Under the terms of a settlement agreement filed on Wednesday, Facebook members will be able to control which content can be used for Sponsored Stories. Facebook agreed to maintain these changes and other new disclosures for at least two years, according to court documents.

Attorneys for the plaintiffs say the changes to "Sponsored Stories" are worth $103.2 million, based on an economist's analysis of the revenue each ad brings to Facebook. Those revenue figures were redacted in the court documents.

A Facebook representative declined to comment, and an attorney for the plaintiffs could not immediately be reached.

The settlement agreement must be approved by U.S. District Judge Lucy Koh in San Jose, California. She must weigh whether the deal's terms adequately benefit class members.

Previous court filings had revealed that Facebook agreed to pay $10 million to charity as part of the settlement deal. The social networking company will also pay an additional $10 million for plaintiff attorneys' fees, according to the court documents.

The case in U.S. District Court, Northern District of California is Angel Fraley et al., individually and on behalf of all others similarly situated vs. Facebook Inc., 11-cv-1726.

(Reporting by Dan Levine in Oakland, Calif.; editing by Matthew Lewis) (Reuters)