MediaPost Publications Judge: ‘Sponsored Stories’ Settlement Raises Concerns 08/03/2012

Facebook-Gavel-A

A federal judge reportedly said on Thursday that he had concerns about the proposed settlement of a class-action lawsuit about Facebook’s sponsored stories program.

Despite voicing concerns, U.S. District Court Judge Richard Seeborg in the Northern District of California didn’t say whether he intends to scuttle the deal or grant it preliminary approval.

The agreement calls for Facebook to pay $10 million to various law schools and advocacy organizations, and $10 million to lawyers who sued the company on behalf of users. The deal also requires Facebook to give users more control over whether they appear in sponsored stories, which publicizes users’ “likes” to their friends.

But the settlement agreement doesn’t allow adult users to opt out of the program. Instead, Facebook has promised to create “a mechanism that will allow users to see and control which actions they have taken that have led to their being featured in sponsored stories ads.” (The settlement will require Facebook to allow minors to opt out of sponsored stories.)

The settlement also doesn’t require Facebook to pay any monetary damages to users whose images appeared in the sponsored stories program. Seeborg said at the hearing that he wanted more information about why Facebook users won’t receive any money, according to Reuters.

If the deal ultimately wins approval, it would resolve a class-action lawsuit filed by five Facebook users. They alleged that Facebook’s sponsored stories program violates a California law giving consumers the right to control the use of their names and images in endorsements. That law also specifies that minors’ images can’t be used in endorsements without their parents’ permission. California’s law provides for damages of $750 per incident.

Several organizations are opposing the settlement, including Consumer Watchdog and the University of San Diego School of Law’s Center for Public Interest Law.

“The proposed settlement is not fair, adequate or reasonable and provides no direct or indirect benefit to class members,” Consumer Watchdog said in a letter to Seeborg dated Aug. 1. Consumer Watchdog also criticized the deal on the grounds that users still can’t opt out of sponsored stories.

Seeborg took over the case three weeks ago, after U.S. District Court Judge Lucy Koh removed herself from the matter without explanation. Seeborg previously approved a separate controversial class-action settlement stemming from Facebook’s Beacon program, which told users about their friends’ e-commerce activity.

In that case, Seeborg allowed Facebook to settle the lawsuit by agreeing to pay more than $6 million to create a new privacy organization — which it would partially control — and more than $2 million to the class-action lawyers who brought the lawsuit.

A Facebook user and privacy advocate who objected to that settlement appealed to the 9th Circuit, which is still considering the case.

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