$20 million Facebook Settlement Rocks Social Media Arena

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Federal judge Richard Seeborg of the U.S. District Court for the Ninth District of California recently approved the negotiated settlement of a class-action lawsuit against Facebook.com.

The settlement disposes of a civil case commenced by an initial class of five plaintiffs in 2011. That small group of disgruntled litigants alleged that the “Sponsored Stories” program featured on the popular social media site violates a California law that regulates advertising endorsements.

Facebook Sponsored Stories format

“Sponsored Stories” was an on-site Facebook feature that automatically shared a site user’s name and profile headshot whenever the user clicked an advertiser’s “Like” icon. Aggrieved plaintiffs posited that Facebook operators violated their personal privacy by disseminating their identities and images without their express consent in order to facilitate product marketing.

The controlling state statute in the suit requires businesses to obtain the prior consent of adult subjects whose images and/or names appear in ad(s). Prior parental is required to display the name and/or image of any minor in an advertisement.

Settlement terms

Per primary settlement terms, Facebook must pay $15 to each member of a final plaintiff class consisting of about 600,000 Facebook users depicted in “Sponsored Stories” ads without their knowledge or prior consent.

Other major settlement terms require Facebook to pay millions of dollars to a group of 14 educational and nonprofit organizations. In addition, Facebook must pay plaintiff legal fees totaling $5,000,000, thereby bringing the total aggregate settlement value to $20,000,000 USD.
Additional settlement stipulations require Facebook to implement various technical adjustments that enable site users to control whether – and the manner in which – site operators may share their content.

Chief case concerns

The California advertisement endorsement law that served as the legal focal point of this case authorizes a compensatory damages award of up to $750 USD per violation. That figure is 50 times the negotiated per-violation award. This vast differential initially caused widespread objection among plaintiffs and commentators.

Judge Seeborg overruled those objections when he noted that it was “unclear” whether Sponsored Stories really violated controlling California law in a written settlement approval. Seeborg further opined that “no doubt” exists that all concerned parties had equal bargaining strength and that final settlement terms are fair.

Beyond the unsettled legal question of whether Facebook indeed violated the law, Judge Seeborg cited the absence of “cognizable harm” and the speculative nature of reports announcing the discontinuation of Sponsored Stories as other factors that weighed in favor of settlement approval.

 

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