Millions Will Flow to Privacy Groups Supporting Weak Facebook Settlement

Privacy and consumer groups are urging a federal judge to sign off on a controversial Facebook settlement over its “Sponsored Stories” advertising program which will net them a combined payout of $10 million, despite indifference to or confusion over the terms of the vaguely written settlement, according to interviews, e-mail and court records.

But groups not getting any money say the settlement does little for the privacy rights of Facebook’s 850 million users and want the deal scuttled, according to court documents and interviews.

Jeff Chester, executive director of the Center for Digital Democracy in Washington, D.C., said the settlement amounts to “just putting some more words in Facebook’s privacy policy that nobody reads.” He added in a telephone interview that, “The proposed changes to the privacy agreement don’t serve the class.”

The Facebook settlement, which needs a judge’s approval, provides a glimpse into the dark side of large class-action settlements: The plaintiff’s lawyers get rich, class members get little and non-profit groups often reap millions by urging judges to approve the deal regardless of its merits.

In this deal, which settles a year-old lawsuit, Facebook is agreeing to give its users the right to “limit” how the social-networking site uses their faces in ads under Facebook’s “Sponsored Stories” program.

But whether the settlement will allow Facebook users to completely opt out of the program, which turns the act of pressing the Facebook “Like” button into a potential commercial endorsement, is totally unclear in the settlement.

The suit, filed in April 2011, claimed Facebook did not adequately inform people of the feature or give them a way to opt out of the advertising program that began in January 2011.

The settlement provides $10 million in fees to the lawyers who brought the privacy litigation and a $10 million donation to charity — earmarked to dramatically boost the budgets of 15 consumer activist groups including the Electronic Frontier Foundation, the Center for Democracy & Technology and the Stanford Law School Center for Internet and Society.

Known in legal terms as cy pres awards, charity payouts to settle class actions are not unusual. Such arrangements often happen when there are so many members of a class-action suit that compensating them for their damages would literally annihilate a company, which judges are loath to do.

The EFF, known for its online freedom initiatives including ongoing litigation accusing the National Security Agency of vacuuming all of Americans’ electronic communications without warrants, stands to reap $1 million from the deal. That amounts to almost one-fourth of its $4.3 million annual budget last year. The group’s executive director, Shari Steele, told the federal judge presiding over the matter that the group backed the settlement. (.pdf)

The group’s legal director, Cindy Cohn, explained in a telephone interview that the San Francisco-based group supported the plan for budgetary reasons.

“We haven’t taken a position on this settlement, whether it’s a good idea or not,” Cohn said. “In general, EFF is happy to receive cy pres money. We can continue to educate people about privacy.”