• by Wendy Davis  @wendyndavis, September 14, 2012

Facebook and a group of consumers have reached a confidential settlement of a dispute stemming from Friend Finder ads, according to papers filed with a federal appeals court.

The settlement brings an end to a 2010 lawsuit alleging that ads for Friend Finder misappropriate users' names and images. That litigation, filed by Robyn Cohen and four other California users, is separate from a pending class-action lawsuit about Facebook's "sponsored stories" program.

Cohen's lawsuit stemmed from allegations that Facebook wrongly promoted Friend Finder by including users' names and faces in ads to their friends. Those ads said that the users had found other friends via the Friend Finder tool. Cohen and the other users argued that those messages violated California law, which provides that companies can't use the names or photos of individuals in ads without their written consent.

U.S. District Court Judge Richard Seeborg in the Northern District of California dismissed the lawsuit last year on the theory that Cohen and the other users hadn't shown they were injured by Friend Finder. Without economic harm, the users didn't have "standing" to proceed in federal court, Seeborg ruled. He didn't pass judgment on whether ads for the tool actually violate California's misappropriation law.

Shortly after that ruling, Facebook asked Seeborg to order the users to pay the company more than $706,000 for its lawyers' work on the case. Winners in litigation typically aren't entitled to reimbursement for their legal bills. But the California misappropriation statute at the center of the lawsuit says the prevailing party is entitled to recover attorneys' fees.

Seeborg denied Facebook's request for fee reimbursement earlier this year. He ruled that even though he dismissed the potential class-action lawsuit, he hadn't decided whether Facebook violated the California law. Therefore, he wrote, Facebook didn't prevail in a way that would entitle it to recoup its legal costs.

Facebook and the users appealed the decisions to the 9th Circuit Court of Appeals. But both sides asked to withdraw their appeals late last month, shortly after meeting with a mediator. Court records show the matters were closed last week.