Legally, are Facebook's social ads kosher?

Most of Facebook's reported 50 million users might be mostly ordinary people, but the site's latest legal issue involves celebrity law.

Earlier this month, shortly after the social networking site announced its Social Ads initiative, University of Minnesota law professor William McGeveran argued in a blog post that the new program might violate a number of privacy laws.

Social Ads, which have already begun to appear on the site, are designed to boost Facebook's lukewarm revenues by targeting ads directly toward the members in question. They allow Facebook members to sign up as "fans" of an advertiser and then have their names and profile photos displayed alongside the marketer's ads on their friends' Facebook pages. Problem is, that potentially violates a New York privacy law that protects peoples' names and likenesses from being used without written permission, according to McGeveran.

"It's not just a New York law. Most states have statutes that protect this. Sometimes it's called a right of publicity, sometimes it's called commercial appropriation, sometimes it's a right to privacy," said Brian Murphy, a partner at Frankfurt Kurnit Klein & Selz, a New York-based media and entertainment law firm. "It's essentially that area of law that protects all of us, but in particular celebrities, from having their likenesses used without their permission."

The real problem facing Facebook, however, isn't that Social Ads are illegal. Social media, including Facebook, is an uncharted territory for the American legal system, and old laws are being applied to a new concept. The New York privacy law that McGeveran cited, indeed, has its roots "more than a hundred years years ago by some bigwigs back in the late 1890s who were tired of having their private lives splashed across the equivalent of Page Six," said Murphy.

"Those statutes were clearly written with a print advertisement in mind," Murphy added. "(It was) long before television and radio, actually. How will courts look at them in a context that's very different, in particular in a social networking context?"

That's a good question. Even McGeveran considers the legality of Social Ads to be an open issue. "I'm being careful not to say that I know it would apply, and I do think it's a good strong possibility that it could apply," he said in an interview with CNET News.com.

Facebook has acknowledged that two organizations have written letters about its ad program to the Federal Trade Commission, which has guidelines concerning testimonials and endorsements in advertising, but the company has not elaborated on the contents of those letters or who sent them. "Facebook is participating fully in the FTC's discussions and explaining the consumer benefits of giving users more control over advertising," the company said in a statement. "Facebook is looking forward to discussing the consumer benefits of Facebook Ads."

Representatives from the FTC declined formal comment, but the two organizations in question--the Center for Digital Democracy and the U.S. Public Interest Research Groups--have made public the letter that they sent to both the FTC as well as several states' attorneys general.

Advertising strategies like Facebook's Social Ads and MySpace's 'HyperTargeted' marketing, the letter said, has "(made) clear the advertising industry's intentions to move full-speed ahead without regard to ensuring consumers are protected," and called on the FTC to investigate in particular the effects of targeted advertising on minors.

At present, the two organizations have not commented further.

One of the reasons why the Facebook advertising situation is so ambiguous is a lack of compensation. It would be easy for actor Ben Affleck to press charges against an advertiser using his endorsement without permission, because he normally gets paid for that sort of thing. "You usually see cases of this sort brought by celebrities," McGeveran said, "because if you use a celebrity name or image in a way that suggests an endorsement without their consent, they can point to the value of their endorsement."

For ordinary people, it's more complicated. "How much is my endorsement worth, even to my friends?" McGeveran speculated. "I can't really demonstrate the same kind of economic value that celebrities have. That leaves things like emotional damages, or other kinds of damages that are much more difficult to prove."

He said one way around this could be if irked Facebook members teamed up. "In California, there's a $750 damages-per-offense in the statute. In that case, every time this happened, considering it could be $750 of damages, I suppose that if you got a group together, that could start to add up." But even a small degree of legal damages doesn't make something illegal any less, well, illegal.

Facebook users technically do "consent" to participating in Social Ads when they sign up as "fans" of a brand. The gray area here is whether that consent is adequate. Facebook representatives have insisted that it is. Some experts aren't so sure. "One of the issues will be whether the consent was obtained under circumstances where people understand what they're agreeing to," Murphy said. "How many times have you clicked through 'I consent' licenses on software and Web sites? I write those for a living, and I don't read them."

As a result, Facebook could make it clearer to users signing up for advertisers' fan pages that they are consenting to have their names and profile photos used alongside those companies' ads within their friend networks. "I wonder whether Facebook has considered maybe making its consent acquisition product more robust, making it clear to people when they become a 'fan' what it is they're in for," Murphy said. "If I were an advertiser, or as a lawyer who represents advertisers, that's one of the things I would want to ensure before I agreed (to a contract)."

Of course, that's a slippery issue, because if Facebook makes the user consent agreement more obvious, joining an advertiser's fan page could look far less attractive to prospective users. That, in turn, could make advertising on Facebook less appealing to marketers.

To add to that, it's likely that the legal burden in Social Ads will be on advertisers, not Facebook itself. "Maybe you visited (a fan page) and decided you hated it," McGeveran suggested. "Advertisers will have to be very careful with how they configure these Social Ads."

A poorly thought-out ad campaign could easily backfire. If John Q. Public signed up as a 'fan' of an acne medication brand on Facebook, for example, and the advertiser implied erroneously in a Social Ad that the medication had cured John Q. Public's nasty facial breakout, that would be a problem. (Not to mention an embarrassment for Mr. Public.)

To the legal system, Facebook and other social networks a whole new ballgame. We're not going to see answers until actual court cases surface. Until then, some say Facebook ought to focus on the more immediate issue: The money, and whether the "trusted referral" ads actually work. "I think people are sort of getting lost in the ethics and privacy of it," said Deborah Schultz, a social media marketing consultant. "I question more its effectiveness."