At the end of 2011, a Legal Pulse post opined on a Northern District of California federal judge’s refusal to dismiss a class action lawsuit: Judge “Likes” Plaintiffs’ Arguments, Online Privacy Class Action Proceeds. American Lawyer Media’s The Recorder reported this morning that Facebook has filed papers with judge Lucy Koh to reach a settlement in Fraley v. Facebook.

Facebook’s decision comes on the heels of its initial public offering and just several days after plaintiffs’ lawyers sought to consolidate 22 other pending class actions into one suit seeking $15 billion in damages (critiqued here two days ago at The Legal Pulse).

Fraleyalleged that the social networking giant’s “Sponsored Stories” program used Facebook consumers to endorse products or services without their permission and without compensation. That program, the plaintiffs argued, violated California’s Right of Publicity Statute and its Unfair Competition Law.

Facebook’s new accountability to shareholders might explain the company’s desire to put this suit behind it, a business decision for which one certainly cannot fault its leaders. The judicial precedent that remains in place, however, is troubling and could come back to haunt Facebook in future lawsuits. As we argued last December, Judge Koh’s reasoning that these “endorsements” had provable value, and thus failure to compensate for them was an injury, was rather unconvincing. Such a low legal bar for surviving a motion to dismiss could give a leg up to future plaintiffs in suits versus Facebook or other online services.

The judge’s conclusion in her December opinion that Facebook users are “celebrities” to their Facebook friends could also have the perverse effect of reducing one’s personal privacy.  Three attorneys make this point in an article for an online symposium sponsored by Stanford Law Review.  In “Famous for Fifteen People“, the authors write:

The implications are significant and potentially far-reaching. The notion that every person is famous to his or her “friends” would effectively convert recognizable figures within any community or sphere, however small, into individuals whose lives may be fair game for the ever-expanding (social) media. If courts are willing to find that nontraditional subjects (such as Facebook users) are public figures in novel contexts (such as social media websites), First Amendment and newsworthiness protections likely will become more vigorous as individual privacy rights weaken. Warren and Brandeis’s model of privacy rights, intended to prevent media attention to all but the most public figures, will have little application to all but the most private individuals.”