Update, December 18 at 2:50 p.m. PT: Instagram has backed down, as we report in this CNET article posted a few minutes ago. Instagram says it will "remove" the language that caused a user revolt over the last day.

Instagram said today that it has the perpetual right to sell users' photographs without payment or notification, a dramatic policy shift that quickly sparked a public outcry.

The new intellectual property policy, which takes effect on January 16, comes three months after Facebook completed its acquisition of the popular photo-sharing site. Unless Instagram users delete their accounts before the January deadline, they cannot opt out.

Under the new policy, Facebook claims the perpetual right to license all public Instagram photos to companies or any other organization, including for advertising purposes, which would effectively transform the Web site into the world's largest stock photo agency. One irked Twitter user quipped that "Instagram is now the new iStockPhoto, except they won't have to pay you anything to use your images."

"It's asking people to agree to unspecified future commercial use of their photos," says Kurt Opsahl, a senior staff attorney at the Electronic Frontier Foundation. "That makes it challenging for someone to give informed consent to that deal."

That means that a hotel in Hawaii, for instance, could write a check to Facebook to license photos taken at its resort and use them on its Web site, in TV ads, in glossy brochures, and so on -- without paying any money to the Instagram user who took the photo. The language would include not only photos of picturesque sunsets on Waikiki, but also images of young children frolicking on the beach, a result that parents might not expect, and which could trigger state privacy laws.

Facebook did not respond to repeated queries from CNET this afternoon. We'll update the article if we receive a response.

Another policy pitfall: If Instagram users continue to upload photos after January 16, 2013, and subsequently delete their account after the deadline, they may have granted Facebook an irrevocable right to sell those images in perpetuity. There's no obvious language that says deleting an account terminates Facebook's rights, EFF's Opsahl said.

Facebook's new rights to sell Instagram users' photos come from two additions to its terms of use policy. One section deletes the current phrase "limited license" and, by inserting the words "transferable" and "sub-licensable," allows Facebook to license users' photos to any other organization.

A second section allows Facebook to charge money. It says that "a business or other entity may pay us to display your... photos... in connection with paid or sponsored content or promotions, without any compensation to you." That language does not exist in the current terms of use.

Google's policy, by contrast, is far narrower and does not permit the company to sell photographs uploaded through Picasa or Google+. Its policy generally tracks the soon-to-be-replaced Instagram policy by saying: "The rights you grant in this license are for the limited purpose of operating, promoting, and improving our services." Yahoo's policies service for Flickr are similar, saying the company can use the images "solely for the purpose for which such content was submitted or made available."

Reginald Braithwaite, an author and software developer, posted a tongue-in-cheek "translation" of the new Instagram policy today: "You are not our customers, you are the cattle we drive to market and auction off to the highest bidder. Enjoy your feed and keep producing the milk."

One Instagram user dubbed the policy change "Instagram's suicide note." The PopPhoto.com photography site summarized the situation by saying: "The service itself is still a fun one, but that's a lot of red marks that have shown up over the past couple weeks. Many shooters -- even the casual ones -- probably aren't that excited to have a giant corporation out there selling their photos without being paid or even notified about it."

Stephen Shankland/CNET

Another unusual addition to Instagram's new policy appears to immunize it from liability, such as class action lawsuits, if it makes supposedly private photos public. The language stresses, twice in the same paragraph, that "we will not be liable for any use or disclosure of content" and "Instagram will not be liable for any use or disclosure of any content you provide."

Yet another addition says "you acknowledge that we may not always identify paid services, sponsored content, or commercial communications as such." That appears to conflict with the Federal Trade Commission's guidelines that say advertisements should be listed as advertisements.

Such sweeping intellectual property language has been invoked before: In 1999, Yahoo claimed all rights to Geocities using language strikingly similar to Facebook's wording today, including the "non-exclusive and fully sublicensable right" to do what it wanted with its users' text and photos. But in the face of widespread protest -- and competitors advertising that their own products were free from such Draconian terms -- Yahoo backed down about a week later.

It's true, of course, that Facebook may not intend to monetize the photos taken by Instagram users, and that lawyers often draft overly broad language to permit future business opportunities that may never arise. But on the other hand, there's no obvious language that would prohibit Facebook from taking those steps, and the company's silence in the face of questions today hasn't helped.

EFF's Opsahl says the new policy runs afoul of his group's voluntary best practices for social networks. He added: "Hopefully at some point we'll get greater clarity from Facebook and Instagram."

Update, December 18 at 12:35 p.m. PT: Flickr, Blipfoto, and other Instagram competitors are pouncing on the controversy Facebook created and are trying to lure away Instagram users by promising better treatment. And Instagram said on Twitter a few minutes ago that: "We've heard you that the updates to our Privacy Policy & Terms of Service are raising a lot of questions. We'll have more to share very soon."

Update, December 18 at 2:50 p.m. PT: Instagram has backed down, as we report in this CNET article posted a few minutes ago. Instagram says it will "remove" the language that caused a user revolt over the last day.