A revised proposed settlement was submitted to federal court in California in the Facebook “Sponsored Stories” litigation. Under the terms of the revised settlement, among other things, Facebook would pay class members up to $10 each.
The suit, filed last year, alleged that Facebook violated the privacy and publicity rights of its users by failing to provide an option that would prevent Facebook from using their names and images in ads which share their Facebook interactions involving a company (e.g., Joan Smith likes UNICEF).
An outcry of criticism followed Facebook’s original proposed settlement, under which the social media site agreed to pay more than $20 million to privacy-related groups and class counsel but no compensation was provided to class members (other than payments to class representatives). Judge Richard Seeborg of the U.S. District Court for the Northern District of California denied preliminary approval of the deal and expressed his concern about the cy pres-only settlement and the size of the $10 million counsel fee.
In addressing Judge Seeborg’s concerns, the new proposed settlement provides a chance for class members to receive a direct monetary payout. Under the revised deal, taxes, class counsel fees, and court costs will be paid first from the $20 million fund, and unlike the original settlement, Facebook can contest the amount of class counsel fees.
Consumers can then submit claims for $10 each. If enough class members file claims that preclude a $10 payment for each person, Facebook will provide compensation on a pro rata basis, unless the payment drops to less than $5. In that case, Judge Seeborg would decide whether each user should receive the cash or whether the money should go to the various cy pres organizations. Alternatively, if the $10 per-person award does not completely drain the settlement fund, the rest will be distributed as a cy pres payment to the privacy rights organizations.
The parties also tweaked other terms in the settlement agreement. The revised agreement clarifies that Facebook will provide users with an “easily accessible mechanism” to view how their “likes” and other content on Facebook have been displayed. Facebook will also revise its terms and conditions to clearly state that users grant Facebook permission to use their names, pictures, content, and information in connection with commercial or sponsored content. If a user is under the age of 18, at least one parent or legal guardian must agree to the terms on his or her behalf. Additionally, new parental controls will enable parents to prevent the names and likenesses of their minor children from appearing in sponsored stories ads.
In its motion in support of the settlement, Facebook wrote, “The revised settlement delivers substantial, immediate relief for the nearly 125 million users in the class. It provides improved disclosure, new and powerful user controls relating to sponsored content, and potentially millions in direct monetary payments.”
To read the amended settlement agreement in Fraley v. Facebook, click here.
Why it matters: California courts appear more reluctant to approve cy pres settlements. This is the second time in recent months that a potential cy pres settlement has come under attack, as a California federal judge took issue with the $75,000 cy pres award and declined to approve Groupon’s $8.5 million settlement with plaintiffs in a class action that accused the company of selling gift certificates with illegal expiration dates. The judge found the cy pres award inappropriate as there are class members who could potentially claim those funds. By contrast, the revised Facebook settlement provides direct monetary relief for class members and, according to Facebook, provides users with greater transparency and control about how their activity on the site can be used in a commercial or sponsored context.