Associating a person with advertising without consent violates their rights of publicity, and a judge has told Facebook it may be looking at a potential $1 Billion settlement fund arising out of its “like” and “sponsored stories” programs. Users claiming inadequate consent to the association of them with companies they “liked” brought class action litigation that had been tentatively settled for $20 Million, but the judge has rejected the settlement and asked the sides to establish that it is fair to the users whose names and photos are alleged to have been used without sufficient permission. This case offers important lessons for companies using social media for advertising and promotions.

In this case a proposed class of Facebook users overcame the social media giant’s motion to dismiss their rights of publicity lawsuit before the United States District Court for the Northern District of California in San Jose, California prior to entering into the settlement agreement. Fraley et al. v. Facebook, Inc., 2011 U.S. Dist Lexis 145195 (Case No. 11-CV-01726-LHK, Opinion and Order December 16, 2011). The plaintiffs in Fraley, four Facebook members purporting to represent all those similarly situated, brought suit against Facebook alleging that Facebook unlawfully misappropriated their names, likenesses, photographs, and identities for use in paid advertisements without obtaining their knowing consent. In an August 17, 2012 Order denying the proposed $20 Million settlement, Judge Richard Seeborg questioned the propriety of the settlement that would give $10 Million to charity, $10 Million to the plaintiffs’ attorneys and no monetary relief directly to the class members. The judge noted that California rights of publicity law provides for $750 in statutory damages per violation and that “even paying each class member the modest sum of $10, might require a settlement fund of $1 Billion (assuming a class of 100 million).” He instructed the parties to present evidence as to if the proposed settlement amount reflected the “plaintiffs’ potential recovery at trial … [with] appropriate discounts applied for the uncertainties, risks and costs of litigation.” The court also questioned if the plaintiff’s counsel had “bargained away something of value to the class” given the size of the proposed attorneys’ fees award -- $10 Million, or half of the entire settlement.

Regardless of whether the $20 Million proposed settlement is eventually approved after the parties brief the fairness issues raised by the court, this case drives home the reality that social media website owners and advertisers cannot assume that “ordinary” Internet users lack the stature to assert publicity rights under the various state right of publicity laws stemming from the use of their names and likenesses. Online and mobile publishers need to question whether they are giving adequate notice to users of their privacy and advertising practices and obtaining enforceable consent to consents and waivers that may be set forth in terms of use and privacy policies. Further, advertisers participating in third party programs that involve user names and likeness need to look into the issue of whether that party has sufficient consent from the users. Finally, advertisers should be wary of user generated content programs that promote the company or its products or services since the user that submits content may not in fact be, or have consent from, the persons depicted in the content even if the user submitting the content is consenting for themselves.

Plaintiffs Successfully Advanced Claims Past A Motion to Dismiss

Plaintiff Facebook members, brought suit against the social media site alleging that it unlawfully misappropriated their names, likenesses, photographs, and identities for use in paid advertisements without obtaining their said consent. Plaintiffs asserted that Facebook’s Sponsored Stories, which associate users with the companies they “like”, constituted a “new form of advertising which drafted millions of [Facebook members] as unpaid and unknowing spokespersons for various products.” Citing Facebook’s alleged misappropriation of their names and likenesses for commercial endorsement as a violation of California Civil Code §3344, the Unfair Competition Law, and as unjust enrichment, the plaintiffs, on behalf of all similarly situated United States Facebook users, brought a putative class action seeking declaratory and injunctive relief as well as damages and other equitable relief.

The court granted the motion to dismiss plaintiffs’ claim for unjust enrichment, but held that on the rights or publicity and related claims they could move forward. While that does not mean the plaintiffs were found to be correct in their assertions, or even that they were likely to prevail, it does mean that if they established viable legal claims that could entitle a jury to find in their favor based on a subsequent presentation of the facts. For more information on this case, click here.

A Similar Case That Was Dismissed Distinguished

Only one authority offered by Facebook was found to be on point: Cohen v. Facebook, case number 3:10-cv-05282, in the U.S. District Court for the Northern District of California, where Facebook users brought similar misappropriation claims against Facebook for placing notifications on members’ homepages stating that certain of their “friends” had used Facebook’s Friend Finder service. The notifications encouraged solicited members to “give it a try.” The district court in Cohen initially dismissed the case finding no cognizable harm despite the possibility such an association could be seen as an implied endorsement for the Facebook service. The district court later dismissed plaintiff’s amended complaint because the arguments asserted therein did not sufficiently allege facts to persuade the court that Facebook’s use of user’s names and likenesses could be seen as serving a commercial purpose.

Nevertheless, the court in Fraley found this case plead sufficiently differently than in Cohen. The court clarified that the Cohen plaintiffs “were not able to show that their names and likenesses had any general commercial value” whereas the Fraley plaintiff’s quoted statements by Facebook’s own CEO and COO on the lofty economic value of friend-to-friend advertisements as compared to generic ads. The Fraley plaintiffs went so far as to indentify the direct, linear relationship between their endorsements and the commercial profit gained by Facebook. The court concluded that plaintiffs successfully alleged facts to show that their “personal endorsement has concrete, measurable, and provable value in the economy at large.”

The court distinguished Fraley’s allegations from that of the plaintiffs in Cohen I and II by noting that plaintiffs here have made specific allegations that their personal endorsement of Facebook advertisers’ products were worth two to three times more than traditional advertisements on Facebook. Cohen plaintiffs simply alleged the use of their names and likenesses resulted in a larger user base and that, in turn resulted in a monetary gain of some sort. This assertion was found not sufficient to show entitlement to relief. The Cohen assertion was not presented with adequate specificity. In Fraley, plaintiffs overcame this burden and avoided the motion to dismiss.

$10 Million Settlement, Donated to Charities, Another $10 Million in Attorney’s Fees

Within months of the decision on the motion to dismiss, Facebook and Fraley entered into a settlement, preliminarily approved by a federal district judge, awarding $10 million in damages and another $10 million in attorney’s fees. In addition to the monetary award agreed upon, Facebook was also compelled to change the policies concerning Sponsored Stories, one of its most effective advertising tools. The agreement, filed June 20th, 2012, provides that Facebook users will be able to control and see which of their actions on Facebook are used to generate advertisements seen by their Facebook friends. Facebook will also offer users settings that will allow them to control which of their Facebook actions can be used in Sponsored Stories. As for the $10 million settlement award, Facebook will donate the money to several non-profit organizations.

Consumer Groups Oppose Settlement, New Judge Takes Over and Court Requires Further Briefing on Fairness

Shortly after the announcement of the proposed settlement, consumer groups began to rally together to assert that the pact should be rejected because it is not beneficial to consumers. One organization in particular, the Electronic Privacy Information Center, sent a letter to the judge overseeing the case contending that the settlement “failed to fix problems with the contested ‘sponsored stories.’” The letter, and request from other consumer advocates, asks that Facebook be made to receive explicit consent before affixing their likenesses to products or services they have opted to “like” on the social network as a condition of the settlement.

On August 17, 2012 he denied the motion for approval of the settlement and instructed the parties to address several concerns he had about the fairness of the proposed settlement. Judge Seeborg replaced U.S. District Judge Lucy Koh who had earlier overseen the litigation and tentatively approved the settlement, but recused herself just a day before the settlement hearing scheduled for early July was to take place. Judge Koh did not provide specific reasons for her recusal.

Lesson Learned

  • Social media users, even if not celebrities, may have an actionable right of publicity associated with marketing or promotions that link them to the advertiser without proper consent.
  • Though their injury may not be as great as that of a celebrity who is in the business of selling endorsements, social media users may be able to establish some economic value to linking them to advertisers. Fraley and others in this case were able to point to statements by Facebook that linking user name and likenesses to advertising resulted in higher advertising rates.
  • As a result, not only might such a misappropriation support a right of publicity claim, it may also support an unfair competition claim. This decision is likely to attract claims by class action lawyers for other programs that associate users with advertising.
  • Social media providers should be careful to avoid notice and consent issues, including allegations of changed terms and insufficient notice to users.
  • Advertisers relying on third party platforms to obtain consent are particularly at risk as they are not in privity of contract even if the platform obtains consent.
  • Immunity afforded by the Communications Decency Act is limited. Outside of the Ninth Circuit some courts include rights of publicity as Intellectual Property claims excluded from the immunity. More information on this topic is available HERE.
  • Even in the Ninth Circuit, development of ads and promotional associations may be outside of the limited editorial function publishers can exercise over third party content and still not be treated as the content provider. For more information on this issue, click HERE.
  • Class actions are expensive to litigate and often result in large settlements when issues of fact exist sufficient to avoid a motion to dismiss.

For more information on these issues, see Friel and Brody, “Right-of-Publicity Claims and Advertiser Sponsored User-Generated Content Campaigns – Limitations of CDA Immunity and the Risk of Claims," e-Commerce Law and Strategy (January 2012).