On March 18, 2011, five plaintiffs (including two minors) sued Facebook in California state court. The plaintiffs claimed to represent the class of people injured by Facebook's introduction of a "Sponsored Story" system, through which Facebook turns certain types of user behavior (such as "liking" a company) into paid advertisements that include the user's name and/or picture.

The first amended complaint alleged three causes of action: (1) Facebook violated California's right of publicity statute, which protects against misappropriation of a person's identity for monetary gain; (2) the Sponsored Stories, being unlawful, fraudulent, and unfair, violated California's unfair competition law; and (3) Facebook's actions constituted unjust enrichment.

After Facebook removed to federal court, the plaintiffs filed a second amended complaint (which alleged the same three causes of action). Facebook then moved to dismiss, arguing that: (1) the plaintiffs lacked standing because they had failed to allege any actual monetary/commercial injury (because their names/likenesses lacked commercial value); (2) CDA § 230 protected Facebook because the Sponsored Stories constituted mere "editorial functions"; (3) Facebook's actions fell within the right of publicity law's exception for "newsworthy" content; (4) the unfair competition claims failed because Facebook does not charge its users; and (5) California does not recognize an unjust enrichment claim.

After the parties exchanged memoranda on the motion to dismiss, on December 16 the judge ruled in favor of the plaintiffs, with the exception of dismissing the unjust enrichment claim.

The court (Koh, J.) first rejected Facebook's standing and § 230 arguments. With respect to the standing issue, the court found that alleging a violation of the California statute constituted a concrete and particularized injury. The court rejected Facebook's § 230 claim because (according to the complaint) Facebook creates, at least in part, the Sponsored Stories, and such actions go above and beyond mere editorial functions.

With respect to the right of publicity claim, Facebook argued that the Sponsored Stories were "newsworthy" within the meaning of the statute because users are "public figures to their friends." The court disagreed, holding that the newsworthiness exemption does not apply to "commercial rather than journalistic" uses. The court went on to state, however, that the fact that users might be "celebrities to their friends" was sufficient to establish that the users had commercially exploitable names and likenesses protected under the statute. The court also ruled for the plaintiffs with respect to Facebook's argument that the plaintiffs consented to the Sponsored Stories by agreement to Facebook's terms of service, and ruled that Facebook's profiting from the Sponsored Stories sufficed to show actual damages (at least at the motion to dismiss stage).

The court rejected Facebook's challenge to the unfair competition claim, but dismissed the unjust enrichment claim, holding that unjust enrichment is not an independent cause of action in California but only a remedy or measure of damages on another claim. Thus, the main thrust of the plaintiffs' complaint remained: both the right of publicity and the unfair competition claims survived, while the independent unjust enrichment claim was dismissed.

Updates:

1/9/2012: Facebook answers the plaintiffs' second amended complaint.

3/16/2012: Facebook files a motion to consider relating a second civil action arising out of allegedly similar facts, E.K.D. v. Facebook, Inc. (a.k.a. C.M.D. v. Facebook, Inc.), No. 12-cv-01216. The second case involved, inter alia, allegations that Facebook was using the names and likenesses of minors who were incapable of giving consent under California law. The plaintiffs opposed the motion, raising concerns about delaying proceedings in Fraley. On March 21, 2012, Judge Koh allowed the motion and related the second case, directing that it to be assigned to her, but refused to consolidate the second case with Fraley because of the delays that would result.

3/29/2012: The plaintiffs file a motion to certify the class, which Facebook opposes. This motion is not acted upon by the Court for another four months (see entry below for 8/1/2012).

6/12/2012: The plaintiffs file a motion for preliminary approval of a class action settlement reached with Facebook and certify the class for settlement. (Only a redacted version of this document was originally available; an unredacted version was made available to the public on September 4, 2012.)  Among other things, the proposed settlement would require Facebook (1) to provide expanded notice to its users that they consent to use of their names and likenesses in Sponsored Stories advertisements, and requiring additional provisions obtaining consent from the parents or legal guardians of users under 18, (2) to pay up to $10,300,000 in attorneys' fees and costs, and (3) to distribute $10,000,000 to cy pres recipients nominated by the parties.  The proposed cy pres recipients include the Joan Ganz Cooney Center, the Center for Democracy and Technology, the Electronic Frontier Foundation, the MacArthur Foundation, the Campaign for Commercial-Free Childhood, the Consumers Federation of America, Consumers Union, the Berkeley Center for Law and Technology, the Center for Internet and Society at Stanford Law School, the Information Law Institute, the High Tech Law Institute, the Berkman Center for Internet and Society, the Consumer Privacy Rights Fund, Connect Safely, and Wired Safety.  [Disclosure: the Citizen Media Law Project is a project of, and hosted at, the Berkman Center for Internet & Society.]

6/22/2012: The plaintiffs in the related action move to intervene and to oppose the proposed class action settlement with Facebook, arguing that specific issues in the second case relating to the use of the names and likenesses of minors made it inappropriate to certify the plaintiffs in the related case as part of the settlement class. Both the plaintiffs in Fraley and Facebook opposed the motion to intervene, and the plaintiffs in the related case filed a reply brief.

7/3/2012: An individual claiming to be part of the settlement class files a pro se motion requesting that the Court add certain charities to the cy pres settlement.

7/11/2012: The Center for Public Interest Law and the Children's Advocacy Institute file an amicus curiae brief in opposition to the proposed settlement, arguing that the proposal does not protect minors in California in accordance with California law, and that the stipulated attorneys fees are excessive in light of the fact that the members of the class would receive no compensation.

On the same date, Judge Koh recused herself from the Fraley case without specific explanation. In a separate order, she clarified that she would nevertheless retain the related case,  C.M.D. v. Facebook, Inc., No. 12-cv-01216. The Fraley case is subsequently assigned to U.S. District Judge Richard Seeborg.

7/25/2012: The Court (Seeborg, J.) denies the motion of the plaintiffs in the related action to intervene as moot, stating that their motion to intervene itself raised the objections that they wished to raise, but granting them the right to argue in opposition to preliminary approval of the class settlement at a hearing scheduled for August 2, 2012. The Court also noted that, as putative members of the class in Fraley, they would also have standing to submit written objections and appear at a hearing on final approval if preliminary approval were granted.

8/1/2012: The Court issues an order on several pending matters, including: (1) denying without prejudice the plaintiffs' 3/29/2012 motion to certify the class, in order to take it off the court's calendar while settlement is pending; and (2) denying the 7/3/2012 motion to expand the list of proposed cy pres recipients.

On the same date, Facebook filed a brief in response to the 7/11/2012 amicus brief from the Center for Public Interest Law and the Children's Advocacy Institute.

8/2/2012: The Court holds a hearing on preliminary approval of the class action settlement, which is taken under advisement.

On the same date, the Electronic Privacy Information Center, the Center for Digital Democracy, Consumer Watchdog, the Privacy Rights Clearinghouse, and a group of privacy-oriented parties file letters with the Court opposing the settlement as insufficient and/or seeking to add additional privacy-oriented organizations to the list of cy pres recipients.

8/17/2012: The Court denies the motion for preliminary approval of the class action settlement, without prejudice, stating that there are "sufficient questions regarding the proposed settlement that it would not be appropriate simply to grant the motion and postpone resolution of those issues to final approval[.]" Among other issues, the Court questioned (1) whether the size of the class is a sufficient justification for monetary relief limited to cy pres payments, (2) whether the $10 million in cy pres payments was an adequate proxy for an award of damages, (3) whether the $10 million figure for payment of attorneys' fees was appropriate, and (4) the specific nature of the injunctive relief that would be granted against Facebook. The Court directed that the parties respond directly to these issues on any renewed motion for approval of the class action settlement. 

8/31/2012: Facebook's brief in support of the motion for preliminary approval of the settlement rejected by the court is docketed. The brief asserted in support of the settlement that the plaintiffs' likelihood of success in the litigation is low based upon a wide range of defenses asserted by Facebook, including:

• that Facebook's users consented, impliedly or expressly, to appear in Sponsored Content;
• that plaintiffs cannot prove economic injury, or that such injury is de minimis;
• that plaintiffs cannot base claims upon Sponsored Content that does not feature names or identifiable photographs, that is unrelated to "products, merchandise, goods or services," or that promotes news, public affairs, sports, political campaigns and other matters in the public interest;
• that Facebook's republication of user comments was protected by the First Amendment and/or immunized by 47 U.S.C. s. 230; and
• that the plaintiffs cannot establish that any of Facebook's conduct was unfair or fraudulent under California's unfair competition law.

As a result, Facebook argued that the proposed settlement provided concrete and immediate benefits to users that address the goals of the lawsuit, in a manner that was fair when balanced against the plaintiffs' likelihood of success and the extended effort that would be required to reach an uncertain result.

10/5/2012: The parties submit a proposed Amended Settlement Agreement and Release to the Court. According to the revised agreement, Facebook would commit to the following actions providing relief to the plaintiff class within six months of a final settlement:

• revision to its Terms of Use to provide improved notice with respect to the Sponsored Stories program;
• creation of a mechanism allowing users to view those aspects of their interactions and content on Facebook that have been displayed in Sponsored Stories, and to control which of these interactions and content are used in Sponsored Stories;
• controls that allow parents to prevent the use of minors' names and likenesses in Sponsored Stories, and an automatic block of such use for minors who state that their parents do not use Facebook;
• additional information for parents about how advertising works on Facebook; and
• good faith efforts to cooperate with plaintiffs' counsel to identify and to correct information appearing on Facebook that incorrectly or insufficiently describes how advertising on Facebook works.

In addition, Facebook would agree to pay twenty million dollars ($20,000,000) into a settlement fund. From this settlement fund, authorized claimants from the plaintiff class would be entitled to a one-time payment of $10 each, with the remainder distributed to cy pres recipients on the following schedule: Center for Democracy and Technology (10% of cy pres distribution), Electronic Frontier Foundation (10%), MacArthur Foundation (10%), Joan Ganz Cooney Center (10%), Berkman Center for Internet and Society (Harvard Law School) (6%), Information Law Institute (NYU Law School) (6%), Berkeley Center for Law and Technology (Berkeley Law School) (6%), Center for Internet and Society (Stanford Law School) (6%), High Tech Law Institute (Santa Clara University School of Law) (6%), Campaign for Commercial-Free Childhood (6%), Consumers Federation of America (6%), Consumer Privacy Rights Fund (6%), ConnectSafely.org (6%), and WiredSafety.org (6%).

However, if payment of $10 to each authorized claimant would exhaust the settlement fund, the proceeds of the fund would be distributed to authorized claimants pro rata -- unless the proceeds to each claimant would be less than $5, in which case the Court would have the discretion to order either that (A) the pro rata amount be paid to claimants or (B) the entire settlement fund be paid to the cy pres recipients in the amounts set forth above.

Plaintiffs' counsel would also be entitled to file a motion for payment of their reasonable attorneys' fees and costs out of the settlement fund, and the named plaintiffs would be entitled to payment of no more than $12,500 each out of the settlement fund as an incentive award for their participation in the case. The Court would retain discretion with respect to attorneys' fees and incentive awards, and a decision not to approve fees or incentives in any particular amount (or at all) would not affect the settlement. Any attorneys' fees or incentive awards would be deducted from the settlement fund before payments to members of the class are calculated, as would any costs of administrating the settlement fund.

10/25/2012: Facebook files a memorandum in support (only redacted version available) of the parties' joint motion for approval of the revised settlement, arguing that the settlement is fair in light of the plaintiffs' likelihood of success.

11/15/2012: The Center for Public Interest Law and the Children's Advocacy Institute file an updated amicus memorandum in opposition to the amended settlement, raising, inter alia, concerns about the opt-out (as opposed to opt-in) mechanism for parental consent proposed by the new settlement, the capacity of minors to agree to Facebook's terms of service, the ability of plaintiffs' counsel to adequately represent the interests of minors, and the risk of depletion of settlement funds through excessive attorneys' fees.

12/03/2012: The Court grants preliminary approval of the amended settlement agreement, stating that "[t]he Settlement Agreement appears to be the product of serious, informed, noncollusive negotiations and falls within the range of possible approval as fair, reasonable and adequate."