Suit challenging Facebook’s ‘like’ ads gets judge’s OK to proceed

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A San Jose federal judge rejected Facebook’s bid to dismiss a lawsuit claiming that ads telling Facebook users that their friends ‘like’ the advertisers violate a California law on commercial endorsements.

U.S. District Judge Lucy Koh ruled Friday that the case can move forward but dismissed a claim that Facebook, which makes an estimated 90% of its money from online advertising, was unfairly profiting from the ads.

“We are reviewing the decision and continue to believe that the case is without merit,” Facebook spokesman Andrew Noyes said in an e-mailed statement.

The world’s most popular social networking site began running the ads called ‘sponsored stories’ in January. Such an ad shows a friend’s name and profile picture and notes that the friend ‘likes’ the advertiser.

The lawsuit was brought by Facebook users who contend the site is making unauthorized use of their names and likenesses, violating the state’s ‘right of publicity’ statute. Facebook says the law does not apply because of an exemption. The plaintiffs seek to represent tens of millions of Facebook users.

Facebook’s revenue will reach $6.9 billion in 2012 from $4.27 billion this year, according to estimates by research firm EMarketer. Its major selling point to advertisers is the persuasive nature of advertising when a product or service is recommended by a friend. People are twice as likely to remember commercial endorsements from friends and three times as likely to buy the product, according to Facebook executives.

Privacy issues continue to dog Facebook, which reached a privacy settlement three weeks ago with the Federal Trade Commission.

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-- Jessica Guynn