A federal judge, ruling late Friday said he had “serious concerns,” and rejected a Facebook privacy settlement concerning the social networking site’s “Sponsored Stories” advertising program.
U.S. District Judge Richard Seeborg of San Francisco was concerned that the deal, which provides a $10 million payout to attorneys suing Facebook and $10 million to charity in what is known as a cy pres award “was merely plucked from thin air.”
At a hearing two weeks ago in San Francisco federal court, Seeborg asked why the payout to charity shouldn’t be $100 million. As he said then and in his Friday ruling, he ordered the parties to provide more information on how it reached that amount. He was concerned that Facebook said the deal might cost them $100 million in advertising revenues, but only $20 million in a payout. And that doesn’t calculate the amount of damages for the 100 million Facebook users who have already appeared in Sponsored Stories, he said.
Those amounts, the judge ruled, makes it seem like Facebook users are getting shafted by the lawyers suppposedly representing them in a fight against Facebook’s use of their profile photos in advertisements.
“[T]here are serious concerns with the provision of the settlement agreement permitting plaintiffs to apply for up to $10 million in attorney fees without objection by Facebook,” U.S. District Judge Richard Seeborg said in an order late Friday.. “The fact that the parties negotiated that “clear sailing” provision separately from the cy pres payment does not wholly eliminate the concern that class counsel may ‘have bargained away something of value to the class.’
“If, and to the extent, that only a much smaller fee award can ultimately be justified here, then the fact that Facebook has agreed to pay up to $20 million (plus up to $300,000 in costs) to resolve this action may be of some consequence in evaluating the adequacy and fairness of the cy pres amount.”
Seeborg said under California law, each plaintiff could be awarded as much as $750.
Under the deal, which would have settled a year-old lawsuit, Facebook agreed to give its adult users the right to “limit” how the social-networking site uses their faces in ads under Facebook’s “Sponsored Stories” program. Minors have the ability to completely opt out.
Sponsored stories basically turns the act of pressing the Facebook “Like” button into a potential commercial endorsement. If a Facebook user clicks the “Like’ button for a product or service with a Facebook page, that user’s profile picture and name may be automatically used in advertisements for that product or service that appear in the their friends’ Facebook pages. Facebook also reserves the right to show such ads on sites other than Facebook.
We reported last month that the deal 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 case, more than a dozen privacy groups and universities stand to reap millions under the accord. Many are supporting the plan for budgetary reasons, despite indifference to, or confusion over the terms of the vaguely written settlement.
And groups not getting any money say the settlement does little for the privacy rights of Facebook’s users and are urging Seeborg to reject the pact.
Had Seeborg signed the deal, U.S-based Facebook members would have been provided a notice to join the case or opt out. Class members could also object to the terms.
The suit, filed in April 2011, claimed Facebook did not adequately inform people of the “Sponsored Stories” feature or give them a way to opt out of the advertising program, which began in January 2011.
The settlement proceeds would dramatically boost the budgets of at least 14 consumer activist groups, including the Electronic Frontier Foundation, the Center for Democracy & Technology and the Stanford Law School Center for Internet and Society.
As part of the settlement, (.pdf) the social-networking site will have to disclose to Facebook users in its new terms of service that it can use its members as public spokespersons for some company for just having “liked” that company, something users sometimes do just to watch a movie or get a discount coupon.
Terms of the deal, unveiled two months ago, also require Facebook to ensure that its users “are apprised of the existence and mechanics of Sponsored Stories ads, and they will then also be capable of taking steps to limit their appearance in those ads.” Yet another section of the accord says, “Facebook will further engineer settings to enable users, upon viewing the interactions and other content that have been in Sponsored Stories, to control which of these interactions and other content are eligible to appear in additional Sponsored Stories.”
It was unclear how that would work in practice, although adults have no way of opting out of the program. Judge Seeborg’s ruling focused on the fact that the $10 million for legal fees and the $10 million to privacy groups was not adequately explained. In his brief ruling, he did not address the language of the new terms of service for Facebook’s users.