Liz Gannes

Recent Posts by Liz Gannes

Facebook’s Social Ad Strategy Suffers Legal Blow

In a ruling that could have significant implications for Facebook’s business, a U.S. district court judge has denied Facebook’s request to throw out a lawsuit by users upset about being featured in its advertisements.

Nothing is final — all that’s been decided is that the class action lawsuit can continue — but the judge did not seem friendly to Facebook’s advertising strategy.

A spokesman for Facebook said, “We are reviewing the decision and continue to believe that the case is without merit.”

Facebook’s business proposition is that ads are better when they are social, because we care about the products our friends endorse. The lawsuit is over a key type of social ad called a “Sponsored Story,” which is generated after a Facebook user clicks the “Like” button on a brand’s page and is shown to that user’s friends.

The plaintiffs in the case said that they clicked on “Like” buttons in order to “receive discounts on products, support social causes, or to see a humorous image.” They weren’t necessarily saying they endorsed a product or consented to be put in an ad.

In legal terms, Facebook allegedly violated their “right of publicity.”

(For background, using the “Like” button as an access gate may not have been the original intent of the feature, which was a replacement for users becoming a fan of a brand’s page. However, lots of brands now do it so they can do things like raise their “Like” count, maintain ongoing relationships with users, and spread Sponsored Stories. This is something Facebook presumably could crack down on.)

Facebook replied to the court that its users have consented to this kind of thing by agreeing to its Terms of Use. But Judge Lucy H. Koh agreed with the plaintiffs that Sponsored Stories didn’t exist when many of the users agreed to the Terms of Use, and Facebook didn’t ask them to review or renew when it added the opt-out feature.

(It’s possible that in the aftermath of the Facebook-FTC settlement, Facebook would have to be more careful about explaining and rolling out this kind of feature in the future.)

The plaintiffs want to be paid for their endorsements, citing public statements by Facebook execs about how effective the social ads are. Facebook COO Sheryl Sandberg has said Sponsored Stories are twice as likely to be remembered as an ordinary ad, and three times as likely to inspire a user to buy something.

In her ruling, Koh denied 10 different ways Facebook tried to get the case dismissed. The only place Koh agreed with Facebook is that the plaintiffs can’t claim “unjust enrichment” as a cause of action — but that’s basically a technicality, because recent California case law says that’s no longer something you can claim.

FacebookFraley

Please see the disclosure about Facebook in my ethics statement.


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There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google