Facebook set to lose $100m as it is forced to settle lawsuit from website users over 'sponsored stories' feature

Published: 23:14 EST, 21 June 2012 | Updated: 02:56 EST, 22 June 2012

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Facebook is set to lose more than $103 million in revenue after a judge forced it to make changes to its lucrative 'Sponsored Stories' advertising feature.

The company has agreed to allow users more control over how their personal information is used in Sponsored Stories as part of a deal agreed to resolve litigation.

Five Facebook members filed a lawsuit seeking class-action status against the social networking website, claiming it violated California law by publicising users' 'likes' of certain advertisers without paying them or giving them a way to opt out.

Facebook: The website will lose $103 million in revenue after being forced to change its money-making advertising feature 'Sponsored Stories'

Under the terms of a settlement agreement filed on Wednesday, Facebook members will be able to control which content can be used for Sponsored Stories.

Facebook agreed to maintain these changes and other new disclosures for at least two years, according to court documents.

Attorneys for the plaintiffs say the changes to Sponsored Stories are worth $103.2 million, based on an economist's analysis of the revenue each ad brings to Facebook.

Those revenue figures were redacted in the court documents.

A Facebook representative declined to comment, and an attorney for the plaintiffs could not immediately be reached.

Violation: The lawsuit claimed the ad feature, pictured, violated California law by publicising users' 'likes' of certain advertisers without paying them

A Sponsored Story is an advertisement 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.

In the lawsuit, Facebook Chief Executive Mark Zuckerberg was quoted as saying that a trusted referral was the 'Holy Grail' of advertising.

The lawsuit also quoted Facebook chief operating officer Sheryl Sandberg as saying that the value of a Sponsored Story advertisement was at least twice and up to three times the value of a standard Facebook.com ad without a friend endorsement, proving the value to the company.

The settlement agreement must be approved by U.S. District Judge Lucy Koh in San Jose, California. She must weigh whether the deal's terms adequately benefit class members.

Previous court filings had revealed that Facebook agreed to pay $10 million to charity as part of the settlement deal.

Boasting: Facebook CEO Mark Zuckerberg, pictured, was quoted in the lawsuit describing 'Sponsored Stories' as the 'Holy Grail' of advertising

The social networking company will also pay an additional $10 million for plaintiff attorneys' fees, according to the court documents.

The settlement was reached last month but made public on the weekend.

The proposed class-action lawsuit, filed in federal court in San Jose, California, could have included nearly one of every three Americans, with billions of dollars in damages, according to previous court documents.

Ms Koh said the plaintiffs had shown economic injury could occur through Facebook's use of their names, photographs and likenesses.

'California has long recognized a right to protect one's name and likeness against appropriation by others for their advantage,' Ms Koh wrote.

The settlement arrangement is known as a cy-pres settlement, meaning the settlement funds can go to charity.

Facebook shares closed at $31.84 on Thursday.