Facebook Saves $80 Million by Settling Lawsuit

After enduring a lawsuit that could have ultimately cost Facebook FB more than $100 million, the social networking giant has agreed to pay $20 million to settle a case involving Sponsored Stories and millions of Facebook users. The company was sued last December after Facebook began to associate user "Likes" with paid advertisements. These "Sponsored Stories" could employ a user's name and profile picture alongside the "Like." According to the Daily Mail, Facebook chief exec Mark Zuckerberg referred to this method as a "trusted referral," which he said is the "Holy Grail of advertising." According to Reuters (via CNET), those words have come back to haunt Mr. Zuckerberg. His words were among those quoted in the lawsuit, along with quotes from Facebook COO Sheryl Sandberg, who said that a Sponsored Story was at least twice as valuable as a standard Facebook ad (which does not include a "Like" from a friend), and could be up to three times as valuable. But in an effort to avoid a fine of $103 million (the estimated value of the Sponsored Stories, according to an economist hired by the plaintiffs), Facebook has agreed to settle the lawsuit and pay a penalty of $20 million. According to Reuters, half of that penalty will be used to teach users how to safely use social networking sites. The Electronic Frontier Foundation and the Center for Internet and Society at Stanford Law School are among the organizations set to receive some of the funds. The other $10 million will pay for the plaintiffs' attorneys. As part of the settlement, Facebook will also change the way it utilizes sponsored ads. Most notably, users will have the option to control how their personal information is used. However, it is not yet known when this adjustment will occur. This is the latest setback for the social networking site, which has been embroiled in a lawsuit with Yahoo! YHOO. Days after the company's IPO, shareholders filed a lawsuit against Facebook for withholding negative information before the company's initial public offering. Follow me @LouisBedigianBZ