Deborah Douez alleged the product known as Sponsored Stories used the names and images of Facebook members without their consent, breaching Section 4 of B.C.'s Privacy Act.
However in a unanimous decision posted online Friday, the B.C. Court of Appeal agreed with Facebook, ruling the judge made a mistake in interpreting the law and staying the class-action proceedings.
"Section 4 is a rule of subject matter competence that, like all B.C. law, applies only in B.C.," wrote Chief Justice Robert James Bauman for the three-member panel.
"California courts determine for themselves, using California law, whether they have territorial competence over any given proceedings."
Bauman said Douez "is at liberty to bring her action in California."
Christopher Rhone, counsel for Douez, said he hasn't yet spoken to his client but will seek instruction to appeal to the Supreme Court of Canada.
"It's important for British Columbians to have their privacy rights protected by the courts of this province," he said.
A Facebook spokesperson was unavailable for comment, but the company responded in an email.
"We are pleased with the court's ruling that our terms are fair and apply to all users," the statement read.
Sponsored Stories included the names and images of members, as well as an advertising logo and product information, and it was sent to other Facebook members.
Facebook has said previously the product is no longer available.
The class action covered B.C. residents who were Facebook members between Jan. 1, 2011 and May 30, 2014, who used their real name or portraits on the website and who were included in the Sponsored Stories.
Facebook is based out of Delaware but its head office operates in California.