California, Facebook, Federal Judges, Plaintiffs Firms, Privacy, Social Media, Social Networking Websites, Technology

I Don’t Think Class Action Settlement Means What You Think It Means

If you use Facebook, you’ve probably noticed the sponsored stories that periodically pop up within the site. These (IMHO annoying) ads are an important part of Facebook’s revenue strategy. But recently, the company got sued over the stories, for allegedly violating the law by publicizing — but not paying — users who “like” certain advertisers, and not providing a way to opt out of the program. A settlement plan was recently announced. But uh oh, the federal judge handling the case rejected the settlement on Friday. Why?

Maybe something to do with the plaintiffs attorneys getting $10 million, the actual plaintiffs getting nothing, and an overall sense that left the judge wondering if the terms were “merely plucked from thin air”….

From the Bits blog of the New York Times:

The case focuses on an advertising tactic known as sponsored stories, in which Facebook users endorse brands, in some cases without their knowledge. For example, if users “like” Wal-Mart, the retailer uses their names and pictures in advertisements to their friends on the social network. Wal-Mart pays Facebook for the service.

Facebook has extolled such advertising. Executives view it as an especially valuable source of revenue on mobile phones, an area where the company has been struggling to bolster its profits.

In the class-action lawsuit filed last year, the plaintiffs argued that Facebook users were not sufficiently informed of how their “likes” translated into profits for the company. The two sides reached a tentative settlement earlier this year.

So far, so good. Right? That doesn’t sound too crazy. What’s the problem here?

As part of the proposed deal, Facebook agreed to better inform users about sponsored stories, to limit their use and to allow people under 18 to opt out of the function. The company also agreed to pay $10 million to a dozen research and advocacy groups that work on digital privacy rights, and $10 million to cover legal fees for the plaintiffs. But the settlement did not inhibit Facebook from continuing to serve up sponsored stories.

Hmmmmm. Let’s imagine the lawyers’ conversation, in a (poor) imitation of an Aaron Sorkin scene:

“Nice work gents. I think we’ve earned ourselves $10 million. That’s not over the top. And we’ll throw some cash over at those advocacy organizations to appease the users.”

“Not for nothing, but Frank, what about all the potential class members. We didn’t even tell Facebook to quit it with the sponsored stories…”

“Oh Johnny, don’t get cute with me. Just sign the damn thing. To say nothing of the fact that we couldn’t possibly pay the millions of potential plaintiffs.”

::puffs massive cigar, ash falls on his prodigious stomach::

“If Facebook can’t maintain seriously basic privacy functions — simply informing users about sponsored stories and allowing people under 18 to opt out of the function — we will be very, very angry with them, and we will write them a letter telling them how angry we are.

Facebook is standing by the agreement, but Judge Richard G. Seeborg isn’t buying it. On Friday, he issued an opinion wondering if the settlement was “merely plucked from thin air”:

Judge Seeborg said he wanted clarification on whether there could be relief for the millions of Facebook users whose names and photographs had already been used. He also asked about the “adequacy and fairness” of how the two sides agreed on the amount to be given to charity. And he raised concerns about the size of the legal fee payment, worrying that the plaintiffs’ lawyers “may have bargained away something of value.”

“We continue to believe the settlement is fair, reasonable, and adequate,” a Facebook spokesman said in an e-mail late Saturday. “We appreciate the court’s guidance and look forward to addressing the questions raised in the order. We are confident we can address the issues raised by the court without substantially revising the settlement.”

Well, we’ll just have to see about that.

Judge Raises New Questions About Facebook Advertising Tactic [Bits / New York Times]
Order Denying Motion For Preliminary Approval of Settlement Agreement [U.S. District Court for the Northern District of California]

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