Judge Skeptical of Facebook ‘Sponsored Stories’ Privacy Settlement

Photo:Sean MacEntee/Flickr

A San Francisco federal judge declined Thursday to approve a Facebook privacy settlement concerning the social networking site’s “Sponsored Stories” advertising program, saying he was concerned that the $10 million payout was not adequately explained, and might not be big enough.

The deal, which does little to bolster the privacy of Facebook’s approximately 150 million U.S.-based users, provides $10 million to the lawyers who sued the social-networking site and another $10 million to charity, in what is known as a cy pres award.

“Why shouldn’t the cy pres be $100 million?” U.S. District Judge Richard Seeborg asked attorneys on both sides.

He suggested he might order the parties to return 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 $10 million is being paid out. And that doesn’t calculate the amount of damages for the 100 million Facebook users who have already appeared in Sponsored Stories, he said.

“I’m not suggesting there is anything wrong with $10 million,” he said. “My question is: Why is it $10 million?”

Under the deal, which settles a year-old lawsuit, Facebook is agreeing 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.

“For everyone but minors, there is no opt out,” Jonathan Jaffey, one of the attorneys suing Facebook, said in a brief interview outside the courtroom.

Inside, attorney Robert Arns, another attorney suing Facebook, told the judge that it’s a good deal, even without the $10 million going to charity.

“I still think it would be a fantastic settlement,” he said. “It’s going to provide social good.”

Michael Rhodes, Facebook’s attorney, said it was a valuable settlement to Facebook users. He said Facebook doesn’t have to make any concession, but is settling after factoring in the “risks of litigation.”

“I’m not going to pay $100 million for a case I should win,” he said.