August 2, 2012 / 9:48 PM / 7 years ago

U.S. judge skeptical of Facebook settlement over ad product

SAN FRANCISCO, Aug 2 (Reuters) - A U.S. judge said he has “significant concerns” about a proposed legal settlement over accusations that Facebook violated its members’ rights through the its ‘Sponsored Stories’ advertising feature.

The comments came from U.S. District Judge Richard Seeborg on Thursday at a hearing in San Francisco federal court. Facebook and attorneys for the plaintiffs had argued that the settlement — which includes changes to Facebook’s privacy settings — represented roughly $123 million in value.

However, the company is only slated to pay about $20 million in cash.

“That doesn’t make any sense to me,” Seeborg said.

Five Facebook members filed a lawsuit seeking class-action status against the social networking site, saying its Sponsored Stories feature violated California law by publicizing users’ “likes” of certain advertisers without paying them or giving them a way to opt out. The case involved 100 million potential class members.

As part of the proposed settlement, Facebook agreed to allow members more control over how their personal information is used. In the opinion of one economist hired by the plaintiffs, and contained in a court filing, the value to Facebook members resulting from the changes is about $103 million.

However, Facebook will pay $10 million for legal fees, and $10 million to charity, according to court documents.

Seeborg must approve any settlement, and he questioned why the class members should not also be able to recover any money.

“I want to know more about why that is so,” Seeborg said.

Facebook attorney Michael Rhodes said the parties couldn’t come up with a mechanism to figure out the value of each user’s individual endorsement. He also said that the changes to the site — such as disclosures and ability for parents to opt out their children — are “unprecedented” for social media sites.

“I would submit to you it has a significant benefit to the class,” Rhodes said.

Additionally, the Facebook attorney said the Sponsored Stories opt out for minors was a compromise, because the site did not want to provide a universal opt out for adults, because it must recover ad money in order to operate.

“We are a commercial enterprise,” Rhodes said. “There is no obligation to join Facebook for free.”

Robert Arns, an attorney for the plaintiffs, said his team thought they could win a massive verdict against Facebook, but were motivated to settle because they feared such a result might be reversed on appeal.

A final decision from Seeborg is not expected for several months.

The case is Angel Fraley et al., individually and on behalf of all others similarly situated vs. Facebook Inc, U.S. District Court, Northern District of California, 11-cv-1726.

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