Facebook Inc (NASDAQ:FB) has settled a lawsuit relating to its placement of sponsored stories in its users news feeds. The case had been brought to a federal court in San Jose California. Facebook has not commented on the settlement but it has certainly been settled. The settlement is described as a settlement in principle in the court filings.

The complaint related to the use of users photographs and names to advertise certain products. On Facebook’s platform if a user liked a certain product or played a certain game there was a chance that their involvement would show up as an advertisement for other users.

The terms of the settlement were not disclosed and it seems Facebook are hoping to let the whole episode disappear. Facebook still uses the system for advertising and it is unclear whether or not the company has plans to revamp the technology in the light of the court settlement.

The service has been around since last year and it is impossible for users to opt out of being included in it.

Since its IPO last Friday Facebook shares have fallen fro their opening price of 38 to a closing price of 31 today. The companies offering is now generally viewed as a massive failure by investors who got involved in the event. The shares may start to rise but Facebook faces problems bigger than a huge over valuation.

Privacy concerns like the ones that resulted in this Lawsuit are primary concerns for many of the services users. If the company continues to trample on perceived privacy rights users may begin to leave the site. Any large drop in the number of active users would signal a massive drop in the company’s valuation. That is something that could end the firm’s internet primacy and be disastrous for its future.