Is Facebook Losing Control?

When Facebook (NASDAQ:FB) settled its Sponsored Stories lawsuit with a group of users two weeks ago, it also agreed to modify the service as part of the deal. Users will reportedly now have more control over how their personal information is used in the ad feature.

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The Sponsored Story feature is essentially an advertisement created using a member’s name, profile picture, and an assertion that the person “likes” a particular brand. It then appears on Facebook pages of friends of the user. A group of five Facebook members had filed a lawsuit alleging the feature violated California law because it did not offer users financial benefits or give them a way to opt out. The class-action lawsuit could have potentially included over 100 million members.

While the two parties settled last week, with Facebook agreeing to pay $10 million to charity, there were other terms as well. Members of the social network will now be able to control which content can be used for Sponsored Stories, and the company has promised to maintain these changes and other new disclosures for at least two years, according to court documents.

According to one economist, the value to Facebook members resulting from the changes is about $103 million. The company will also pay an additional $10 million for plaintiff attorney fees. In the lawsuit, Facebook chief executive Mark Zuckerberg was quoted as saying that a friend’s referral was the “Holy Grail” of advertising.

The settlement agreement is yet to be approved by U.S. District Judge Lucy Koh.

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