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October 25, 2012 / Puneet Toor

Facebook Proposes New $20 Million Settlement Agreement With User Payout for “Sponsored Stories”

Having been rejected once by the San Francisco federal court overseeing the matter, Facebook submitted a revised $20 million settlement agreement for the “Sponsored Stories” class action.  The “Sponsored Stories” class action involves an advertising feature introduced in 2011 that shows a user’s name and profile picture as an endorsement of a brand or an advertisement the user has “liked.”  The “Sponsored Stories” advertised users’ Facebook “likes” without their permission and without compensating them in violation of California advertising laws. Some consumer groups have also argued that the advertising was a violation of users’ privacy rights.

The class action suit was first filed in the U.S. District Court for the Northern District of California in 2011 as Fraley v. Facebook  Inc., and alleged that Facebook violated user’s rights by placing them in a “Sponsored Stories” feature without permission and without any way to opt out. Facebook’s first settlement agreement was rejected by U.S. District Judge Richard Seeborg. Judge Seeborg raised a number of concerns about the settlement agreement, including why it provided no money to actual users. The new August 17, 2012 settlement fixed this issue and set asides monies to be paid to users, as well as approximately to $10 million to be paid to charities involved internet privacy issues.

The settlement potentially involves 125 million people, which could come out to about 2 cents per user if every user were to opt-into the lawsuit. While that scenario is unlikely, the total amount each user can recover is capped at $10.00.  If there is money left over after payment to consumers, attorneys, and class administration fees, the remaining amounts will be paid to charity.  Both sides will now have to wait to see whether this settlement agreement will be approved by Judge Seeborg.

Although the settlement will not prevent Facebook from using its users’ images and “likes” in advertising, Facebook says it will add a more explicit disclaimer to its terms of service to make it clear that all users give Facebook the right to feature their names, profile pictures, and other information in advertisements and for commercial purposes.  They also promise to make a feature available so users can see how their names, interactions, and “likes” have been used in advertisements and how users can control the use of that information in future ads.

The new settlement proposal submitted also contains agreement terms that will give users more control over how their names and likenesses are used, prevents Facebook from targeting children, and allows parents to opt-out on behalf of their children directly once the relationship with Facebook is confirmed. The settlement proposal is expected to be reviewed by U.S. Judge Richard Seeborg at a settlement hearing on October 25, 2012.

If you feel your privacy rights have been violated, contact Khorrami, LLP for more information.

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