What a whirlwind week(-plus) for Facebook and its creator, Mark Zuckerberg. First, the wunderkind turned 28. A few days later, his social medium made its initial public stock offering, which went from buzz to fizzle. Then, he married his longtime girlfriend.
In the middle of all of that, settled a lawsuit that alleged the social network's "Sponsored Stories" advertisements benefited from the "Likes" of users without giving them compensation or a chance to opt out.
The lawsuit, filed last year by five Facebook users, could have resulted in billions of dollars in losses for Facebook, according to Reuters. The proposed class action lawsuit, filed in a San Jose, Calif., federal court, could have included nearly one of every three Americans, with billions of dollars in damages, Reuters reported. Terms of the settlement were not disclosed.
A "Sponsored Story" is an ad 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. The lawsuit featured comments from Zuckerberg, stating that a trusted referral is the "Holy Grail" of advertising. When Facebook introduced the feature in 2011, it showed the user’s profile photo alongside their endorsement, according to an article in Macworld. The lawsuit, filed in the Northern District of California, said that was a violation of California state law, because Facebook didn’t give users the chance to opt out of having their image used, Macworld reported.
Facebook hasn't likely faced the last of its legal challenges regarding its IPO, either. Some are lawmakers and lawyers are howling with accusations that banks underwriting the IPO concealed crucial information shortly before the social networking company went public, allowing a handful of investors to reap big rewards from the otherwise flat stock.