Judge Skeptical of Facebook ‘Sponsored Stories’ Privacy Settlement

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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.

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 U.S. District Judge Richard Seeborg in San Francisco to reject the pact.

“The proposed revisions and additions to Facebook’s onerous user agreement do not alert users to Facebook’s use of names, photographs, and other personal information in Sponsored Stories advertisements. The settlement agreement does not even allow users to opt-out of Sponsored Stories,” Laura Antonini, a staff attorney with Consumer Watchdog, told (.pdf) the judge in a letter Thursday.

Had Seeborg signed off on 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 judge did not indicate when he would ultimately rule on the deal.

“I’m not going to approve it today. I’m going to have to give it a little bit of thought,” he said.

The suit, filed in April 2011, claimed Facebook did not adequately inform people of the 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. Judge Seeborg did not demand more information during the approximately 150-minute hearing. Attorneys suing Facebook declined to elaborate on that point after the hearing.

Currently, Facebook does not allow any form of opting out of Sponsored Stories on Facebook.

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