The high-profile case against Carrier IQ that was initiated after it was revealed that the software developer provided a system that allowed mobile phone manufacturers to log users' keystrokes—has reached a potential deal, with the defendants agreeing to pay $9 million to an estimated class of 79 million consumers.

More than 70 consumer class actions were filed against Carrier IQ after concerns arose that the content of consumers' private electronic communications was being captured and transmitted from their devices to unintended third-party recipients. The suits were consolidated into multidistrict litigation in California and after various motions were filed by both sides, the parties reached a proposed settlement.

Pursuant to the motion in support of the deal filed by the plaintiffs, Carrier IQ would provide $9 million for a class settlement fund. Class members would be required to affirmatively file a claim. If all of the estimated 79 million class members submitted claims, individual payments would amount to just 11 cents.

However, the parties agreed that if enough class members file claims that would result in an individual payment of less than $4 each, no money would be distributed to class members. Instead, the fund would be divided among three organizations: the Electronic Frontier Foundation, the Center for Democracy and Technology, and CyLab Usable Privacy and Security Laboratory at Carnegie Mellon University.

The proposed fund would also provide for the cost of notice and administration, $5,000 awards for 17 named class representatives (totaling $85,000) and approximately $2.25 million for class counsel, as well as costs and expenses.

Carrier IQ also agreed to policy changes, such as the alteration of its software.

Not surprisingly, U.S. District Court Judge Edward M. Chen had some reservations about the proposed settlement. Opting not to immediately sign off on the deal, he instead directed the parties to file supplemental briefs on a host of issues from the definition of the class (the proposed language only included the named user of a wireless provider account, which could exclude other authorized users, the court noted) to the adequacy of the proposed notice program.

The court expressed concern about the proposed notice program, which does not contemplate individual notice, but instead calls for Internet notice via banner ads, search-related advertising, and at a settlement website. Class counsel stated that individualized notice was not possible since he could not get addresses for class members from wireless providers. Nonetheless, the court asked for more details and a sense of how effective the proposed notice plan would likely be.

In addition, Judge Chen sought a greater explanation of how the attorney's fees were computed, a more robust analysis as to the merits of the plaintiffs' case, and the authority for the proposition that a named plaintiff is entitled to a $5,000 incentive award where each class member will likely obtain minimal monetary damages.

To read the plaintiffs' motion for preliminary approval of the settlement inIn re Carrier IQ Consumer Privacy Litigation, click here.

To read the court's order requesting supplemental briefing, click here.

Why it matters: While settlements in privacy litigation often face the question of how to value a breach with an appropriate award for class members, Judge Chen left the parties with serious obstacles to getting the court's approval of the proposed settlement. He expressed a host of concerns with the Carrier IQ deal. He even had problems with the press release and notice forms provided by the plaintiffs, but paid particular attention to the issues presented by the notice because Carrier IQ does not have access to contact information for the class members.