Facebook has agreed to donate $10 million (6.37 million) to a charity, after five members accused the social network of violating their rights by using their names and photographs in adverts.
The users' complained their photos were being used in Facebook "Sponsored Stories", which are adverts generated when a member of the site "likes" a company's page.
An advert for that company then begins to appear on their friends' pages, along with the original member's name and profile picture.
Five of the site's users filed lawsuits in December 2011 in a federal court in San Jose, California, claiming the unauthorised use of their photos violated California's privacy laws.
The legal challenges were resolved in May, but have only just been made public.
US District Judge, Lucy Koh, said the plaintiffs had proved that economic injury could occur through Facebook's public use of their names, photographs and likenesses.
"California has long recognised a right to protect one's name and likeness against appropriation by others for their advantage," Koh said.
The users were aggrieved that Facebook had used their likenesses without paying them or letting them opt-out of the scheme.
According to court documents, Facebook's terms of use "mislead its users into believing that they can prohibit the use of their name and profile picture in advertisements."
The settlement raises tough questions for the social networking firm, as Sponsored Stories are a significant source of revenue for the company.
The lawsuit quoted Facebook chief operating officer, Sheryl Sandberg, as saying the value of a Sponsored Story advert was between two and three times the value of a standard one that does not carry a friend's endorsement.
The settlement means the money will go to an undisclosed charity, rather than the plaintiffs.
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