Could Lawsuit Hamper Facebook’s Targeted Ad Efforts?

By Trey Thoelcke Published Jan 3, 7:40AM EST

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“Facebook’s desire to harness the myriad data points of its users has led to overreach and intrusion … as it mines its account holders’ private communications for monetary gain,” allege the plaintiffs in a lawsuit filed earlier this week against Facebook Inc. (NASDAQ: FB). This gets at the heart of what the social media giant does. Its business model depends largely on its ability to target individuals sought by advertisers.

The suit charges that Facebook systematically scans messages between users that are labeled “private” for links and other information that can be sold to third parties, particularly advertisers, marketers and data aggregators. This is done without proper disclosure or the consent of users, which violates the Electronic Communications Privacy Act, as well as California privacy and unfair competition laws. The suit was filed by two Facebook users in a U.S. district court in Northern California.

The suit asks that Facebook be prohibited from continuing to intercept messages and seeks as much as $10,000 in damages for each user. If the Facebook suit becomes a class-action, as many as 166 million users in the United States would be eligible to join. A Facebook spokesperson said the lawsuit is without merit and that the company would vigorously defend itself, though it must examine the particular allegations before responding to them specifically.

Facebook is not alone. Google Inc. (NASDAQ: GOOG) and Yahoo! Inc. (NASDAQ: YHOO) have also faced lawsuits in the same district court over their practice of scanning the content of e-mails. The ability to scan user messages for advertising purposes is a major reason both companies offer free e-mail. Google claims that its scanning of messages is automated, that no people read the content. LinkedIn Corp. (NYSE: LNKD) has also faced similar accusations.

Facebook shares were up fractionally in premarket trading Friday, at $54.82 in a 52-week range of $22.67 to $58.58.

About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.