Facebook's Sponsored Stories: new ad format, same old legal problems?

With more than a half a billion users, Facebook knows an awful lot about an awful lot of people. And all the data it collects is no doubt a gold mine.

But sitting on a gold mine and actually being able to extract the gold are two very different things. Although Facebook's revenue has grown rapidly, its effectiveness at monetizing each of its users lags well behind other prominent internet companies like Google.

In its quest to leverage all of its data to build more effective advertising offerings, Facebook has frequently found itself in hot water. Take Social Ads and Project Beacon, for instance. They "combine[d] social actions from your friends – such as a purchase of a product or review of a restaurant – with an advertiser's message." The result: a privacy uproar.

Now, Facebook is taking the same concept and applying it to activities within the News Feed. Post a status update about Starbucks, for instance, and Starbucks can pay to turn the note about your coffee run into a Facebook promotion. Like Coca-Cola and Coca-Cola can turn your click into an advertorial. For insecure brand marketers wanting to create a virtual testimonial every time a customer mentions them, Sponsored Stories may seem like a perfect ad offering.

There's just one problem with all of this -- Sponsored Stories seemingly runs afoul of the same laws that critics argued made Social Ads so problematic:

Common-law privacy torts...forbid someone from appropriating the name or likeness of another, and several states -- including New York and California -- have such laws. New York, for example, forbids the use of a person's "name, portrait, picture or voice" from being used for advertising purposes without the prior written approval from the person.

As George Washington Unversity law professor Daniel Solove noted back in 2007, "It seems as though Facebook might be assuming that if a person talks about a product, then he or she consents to being used in an advertisement for it. But such an assumption might be wrong..." Here, Facebook is doing exactly that; it assumes that a like or checkin, for instance, constitutes consent to feature a user's name and likeness in an ad.

According to AdAge, "users...will not be able to opt out of having their action turned into an ad and having that broadcast to their connections on Facebook." If true, this almost certainly won't help Facebook, which is already facing a lawsuit in California claiming its 'like' buttons violate a California law forbidding anyone under the age of 18 from consenting to the use of his or her name or likeness for an endorsement.

Facebook, of course, is no stranger to lawsuits. Project Beacon -- the key component of Facebook's Social Ads -- was shuttered as part of a class action lawsuit settlement. The class action was originally filed over similar privacy issues. So it seems inevitable that class action attorneys will be looking for lead plaintiffs for yet another class action lawsuit, if they're not already.

Which begs the question: will Facebook ever decide that trying to turn its users into breathing advertisements is a fruitless exercise? The answer: so long as blue-chip advertisers are willing to buy into every ill-conceived ad offering Facebook creates, no.

Photo credit: steakpinball via Flickr.