Facebook proposes revised settlement in Sponsored Stories lawsuit

The company has now agreed to pay up to $10 to each member of the class

Facebook has proposed a revised settlement in a lawsuit in which it was alleged to have used the names and likeness of the plaintiffs without their prior consent in "Sponsored Stories" advertisements shown to their online friends on the social networking website.

The company has agreed in a court filing on Saturday to pay Facebook users in the U.S. who appeared in Sponsored Stories up to $10 each to be paid from a $20 million settlement fund, amending its earlier proposed settlement which aimed to pay $10 million to activist organizations and charities as cy pres fee as direct payment to all members of the class was not feasible. Another about $10 million was earmarked for attorneys' fees and expenses.

Facebook has also promised greater user control including a tool that will enable users to view going forward the subset of their interactions and other content on Facebook that may have been displayed in Sponsored Stories, and the ability to prevent further displays of these Sponsored Stories.

The motion for preliminary approval of the earlier proposed settlement was rejected in August by the U.S. District Court for the Northern District of California, San Francisco division with the Judge Richard Seeborg ruling that there were sufficient questions regarding the proposed settlement. The question will remain as to whether $10 million in cy pres recovery is fair, adequate, and reasonable, the Judge wrote in his order.

"Although it is not a precise science, plaintiffs must show that the cy pres payment represents a reasonable settlement of past damages claims, and that it was not merely plucked from thin air, or wholly inconsequential to them, given their focus on prospective injunctive relief," Judge Seeborg added.

The settlement relates to a class action lawsuit filed in U.S. District Court in California in 2011 by Angel Fraley and others in which they alleged that Sponsored Stories constitute "a new form of advertising which drafted millions of (Facebook members) as unpaid and unknowing spokepersons for various products," for which they were entitled to compensation under California law.

The new proposed settlement, which also needs Seeborg's approval, covers nearly 125 million users in the class, which could see each member getting a few cents on a pro-rata basis if all file claims.

Some funds will still go to charity if there are any left after paying for users' claims, attorneys fees and other expenses are met. The entire amount could still go to charity if it is found economically unfeasible to pay all class action members without exceeding the settlement fund, according to the revised proposed settlement. Facebook can also now oppose petitions for fees and expenses by plaintiffs' counsel.

Facebook has argued in the lawsuit that the users had agreed to its terms of use as a condition for using its website, and agreed to the possible use of their name and profile picture in association with commercial, sponsored or related content, before Sponsored Stories was launched. The "clear, express consent posed an insurmountable hurdle for Class Members" who had the burden to prove that the social networking site did not have consent to display their names and profile pictures, it said in the filing on Saturday.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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