Facebook “Sponsored Stories” class action settlement granted preliminary approval

by Eric Pearson

A class action settlement has received preliminary approval from the court overseeing a lawsuit alleging that Facebook used people’s names, photographs, likenesses, or identities to advertise or sell products or services through “Sponsored Stories” without permission. Under the settlement, Facebook will make changes to its website and policies as well as pay $20 million that will be used to pay $10 each for Facebook users who make a valid claim as well as to compensate the attorneys who prosecuted the case for the class. Any money remaining in the settlement fund is to be distributed to particular organizations concerned with Internet and consumer privacy issues.

“Sponsored Stories” are typically posts about a Facebook user that an entity has paid to promote so there is a better chance that the posts will be seen by a chosen audience. They may be displayed, for example, when a Facebook user clicks on the “Like” button on an entity’s Facebook page; for example: “John Smith likes UNICEF,” “John Smith played Farmville,” or “John Smith shared a link.”

This is the second attempt at settling the claims asserted in Fraley et al. v. Facebook in the Northern District of California. The federal court refused to grant preliminary approval to a proposed settlement earlier this year that did not include any direct payment to class members, would have required Facebook to pay $10 million to certain privacy-related charities, and provided that Facebook would not challenge a request for attorney’s fees up to $10 million. In that order, the court noted it was apparent Facebook was willing “to pay up to $20 million (plus up to $300,000 in costs) to resolve this action …”

The new settlement obligates Facebook to pay $20 million. Any attorney’s fees awarded to the class counsel by the court will—along with the costs of administering and distributing the settlement— reduce the amount of the settlement fund available to pay claimants. However, the new settlement is not conditioned on any award of fees and includes no agreement as to the amount of fees that might be sought or awarded.

The new settlement provides that any class member who “submits a valid and timely Claim Form” is to receive a payment of $10. As part of the claim process, the settlement provides that “Facebook’s records must also reflect that the Class Member appeared in a Sponsored Story …”

If payment of $10 to all “Authorized Claimants” does not exhaust the Settlement Fund, the settlement provides that remaining funds are to be distributed to the following organizations: Center for Democracy and Technology (10% of cy pres distribution), Electronic Frontier Foundation (10%), MacArthur Foundation (10%), Joan Ganz Cooney Center (10%), Berkman Center for Internet and Society (Harvard Law School) (6%), Information Law Institute (NYU Law School) (6%), Berkeley Center for Law and Technology (Berkeley Law School) (6%), Center for Internet and Society (Stanford Law School) (6%), High Tech Law Institute (Santa Clara University School of Law) (6%), Campaign for Commercial-Free Childhood (6%), Consumers Federation of America (6%), Consumer Privacy Rights Fund (6%), ConnectSafely.org (6%), and WiredSafety.org (6%).

The settlement also obligates Facebook to make certain changes to its Terms of Use “About Advertisements and Other Commercial Content Served or Enhanced by Facebook.” And, Facebook is to “create an easily accessible mechanism that enables users to view, on a going-forward basis, the subset of their interactions and other content on Facebook that have been displayed in Sponsored Stories (if any).” Among other issues related to minors, Facebook will also “add an easily accessible link in the Family Safety Center […] to the tool it currently provides that enables parents to prevent the names and likenesses of their minor children from appearing alongside Facebook Ads […] and Facebook will extend this tool to enable parents to also prevent the names and likenesses of their minor children from appearing in Sponsored Stories.”

U.S. District Judge Richard Seeborg ruled that the new settlement meets the requirements for preliminary approval, adding in a written order that it “has no obvious deficiencies” and appears to be the product of serious negotiations between lawyers for Facebook and a group of users who filed suit against the ad program. The court scheduled a final fairness hearing to determine whether to finally approve the settlement on June 13, 2013.

by Eric Pearson

Eric Pearson is a licensed attorney and a partner at HO&P who handles commercial and personal injury lawsuits. Eric has been selected to the Super Lawyers List, a Thomson Reuters publication.