Facebook is agreeing to pay $10 million to a charitable fund to settle a Northern District of California suit surrounding its Sponsored Stories ads. The case had been settled last month but details haven’t been made public until the weekend.

The 'Holy Grail' of advertising

Sponsored Stories launched back in January of 2011 and they allow Facebook to monetize your Likes, Posts, and Check-Ins by selling them as ads on your friends’ timelines. For example, Angel Fraley — a Plaintiff in the case — "Liked" Rosetta Stone’s Facebook profile in order to get some free demo software. Her user name ("Angel Frolicker," a pseudonym) and profile picture then showed up on her friends’ Facebook pages with the caption "Angel Frolicker likes Rosetta Stone." Referrals from trusted friends are "the Holy Grail of advertising," according to CEO Mark Zuckerberg, and the Plaintiffs believe they're much more valuable than regular ads on the site.

A California Civil Code makes it illegal to use "another’s name, voice, signature, photograph, or likeness for advertising, selling, or soliciting purposes" without his or her consent. One of Facebook’s defenses was implied consent — by agreeing to Facebook’s Terms of Use you agree to give the company "permission to use your name and profile picture in connection with [commercial, sponsored, or related] content, subject to the limits you place," but the Plaintiffs point out that it’s impossible to opt out of Sponsored Stories altogether. Furthermore, they all registered for Facebook accounts before Sponsored Stories rolled out, and weren’t asked to agree again when the new ads went into use.

Facebook has over 153 million users in the US, so assuming 100 million appeared in the ads, a meager $10-per-person class action settlement could have cost Facebook a cool $1 billion. In his declaration, mediator Edward A. Infante states that, "absent a settlement, these issues would continue to be hotly contested at the trial court level, and perhaps for many years in the appellate courts."