Facebook has landed in some legal hot water over its use of ads that snatch the names of members of the social network to promote a product or business.
In a ruling issued Friday, U.S. District Judge Lucy Koh in San Jose, Calif., denied Facebook's request to dismiss a lawsuit over the practice of so-called sponsored stories. Such "stories," which started popping up this past January, create an ad based on the "likes" of a member's Facebook friends.
The ads typically display the friend's name, photo, and a caption asserting that the person likes a certain advertiser. The ads are generated when a Facebook member clicks on the "like" button for a particular page, product, or company.
The plaintiffs who filed the suit claim that sponsored stories violate California's Right of Publicity Statute, which prevents the use of a person's name or photo in a paid advertisement without that person's consent. The plaintiffs also allege they were unaware that the act of clicking on a "like" button would be considered an endorsement or an "expression of consumer opinion."
In its attempt to dismiss the suit, Facebook had argued that using the names and photos of members in connection with their "likes" is newsworthy rather than advertising since the plaintiffs are considered public figures on the social network to their friends.
But in denying Facebook's request to dismiss the suit, Koh found that even "newsworthy actions may be subjects of liability when published for commercial rather than journalistic purposes."
The judge's ruling now paves the way for the lawsuit to move ahead. A verdict against Facebook could hit the social network directly in its wallet. As the court document points out, the company earns most of its revenue by selling targeted advertising that appears on members' Facebook pages.
Facebook's sales could climb as high as $6.9 billion next year from $4.27 billion this year, according to EMarketer estimates cited by Bloomberg. Almost 90 percent of those sales will come from ad revenue.
In response to the judge's ruling, a Facebook representative told CNET that "we are reviewing the decision and continue to believe that the case is without merit."
Updated at 7:45 a.m. PT with a statement from Facebook.>