By Sarah Shearman, mediaweek.co.uk, Friday, 22 June 2012 11:25AM
Sponsored Stories, dubbed social ads, publish the name and image of users' friends who have interacted with the advertiser paying for the ad.
They have long been held up by Facebook as its most effective "word of mouth" format on offer and has recently been inserted into users' timelines, both on desktop and mobile.
However, the format ran into a lawsuit filed by five Facebook users, who claimed it violated Californian law by publicising likes of advertisers without them paying for them or obtaining permission.
The result of the lawsuit is that Facebook has agreed to make changes, while according to reports it has been ordered by the court to pay more than $20m to settle the case.
According to the court filing Facebook has agreed to create "an easily accessible mechanism" enabling users to view the subject of their interactions and other content displayed in Sponsored Stories.
The new settings will allow users to prevent individual interactions and other content from appearing in Sponsored Stories.
Facebook will also provide a "clear, easily understandable" description of how advertising works and pay $10m to organisations that educate people how to use social networking technology safely.
A Facebook spokeswoman would not comment on the company’s plans for Sponsored Stories, or confirm an implementation date for the changes.
Lee Griffin, commercial director of TBG Digital, the Facebook specialist marketing agency, said the effect on advertising campaigns is likely to be "minute".
He said: "The percentage of users who bother to change their settings will be very low, as with other privacy setting options that have been introduced in the past.
"I believe that users are ambivalent about the use of their actions in ads, since they gain from discovering what their friends like, comment on and use in Facebook."
He said TBG has found Sponsored Stories to be the most effective of Facebook’s ad formats with higher click through rates.
Facebook's advertising model has been thrown into sharp focus in recent months surrounding its IPO.
Follow Sarah Shearman on Twitter @Shearmans
This article was first published on mediaweek.co.uk