Facebook has agreed to pay $10 million to charity to settle a lawsuit which alleged the social networking site violated California law by publicizing users' "likes" of certain advertisers on its "Sponsored Stories" feature without paying them or giving them a way to opt out. 

The lawsuit, brought by five Facebook members had accused Facebook of sponsoring a story which they say was an advertisement that appears on a member's Facebook page. Itgenerally consists of another friend's name, profile picture and an assertion that the person "likes" the advertiser, reports Reuters.  

The proposed class-action suit, filed in federal court in San Jose, California, could have included nearly one of every three Americans, with billions in damages another potential black eye for a company that has struggled since its disastrous initial public offering last month.

The also lawsuit quoted comments of Facebook chief operating officer Sheryl Sandberg, saying that the value of a 'sponsored story' advertisement was at least twice and up to three times the value of a standard Facebook.com ad without a friend endorsement.

According to Reuters, U.S. District Judge Lucy Koh said the plaintiffs had shown economic injury could occur through Facebook's use of their names, photographs and likenesses.

'California has long recognized a right to protect one's name and likeness against appropriation by others for their advantage,' Koh wrote.

The settlement arrangement is known as a cy-pres settlement, meaning the settlement funds can go to charity. A judge still needs to approve the settlement.