Facebook Sued on Privacy Concerns

Privacy concerns have long plagued Facebook, and the social networking site has gone to great lengths to reassure users and involve them in protecting their information. Facebook even opened up the process of crafting new terms of service, taking recommendations and allowing users to vote on the rules Facebook would accept for the site. But Monday five Facebook users sued the website, alleging that it violated California state laws that protect consumer privacy.

The plaintiffs demand a jury trial, and to be paid damages and attorney's fees. This comes on the heels of the Canadian privacy commissioner raising concerns about Facebook's privacy policy, which the site is in the process of addressing. The big point of contention is whether Facebook owns user's information posted on profile pages, a question raised when Facebook changed its terms of service earlier this year.

Now Facebook is fighting back, saying in a statement: "We see no merit to this suit and we plan to fight it." After those concerns that Facebook might be claiming ownership to personal information Facebook engaged with users to participate in creating the new terms of service. The lawsuit indicates that users aren't given notice about changes in terms of service. But Facebook counters that it actually does give users notice on changes of terms of service. In contrast, many other companies, including rival MySpace , and Google mention that the company reserves the right to modify their terms, and will post those new terms, though not necessarily alert customers.

This WILL be a showdown. The conflict lies at the heart of social media's challenge: reassuring consumers that their information is safe, while also targeting ads based on that information.

This isn't Facebook's only headache. MySpace is reportedly very close to buying popular social music application iLike for some $20 million. An alliance between iLike, the most popular music application on Facebook, and MySpace would be a slap in the face for Facebook. It would also be a statement on MySpace's commitment to focusing in on the music and entertainment space as a way to differentiate itself from Facebook and secure a devoted following.

MySpace's parent company, News Corp, was dragged down by a $680 million charge last quarter, mostly on a write down of MySpace's division -- Fox Interactive Media. There are a lot of unknowns, but it seems safe to say that MySpace could use iLike to try to lure over some Facebook users.

(Would Facebook users of the app be pushed over to MySpace? We'll see.)

Questions? Comments? MediaMoney@cnbc.com