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Judge rejects Facebook ad settlement, cites $10 million lawyer pay-out

Facebook(s fb) and class action lawyers thought they had a deal over “Sponsored Stories,” a type of advertising in which Facebook had users endorse products without their permission. But a federal judge has now kiboshed the $20 million settlement that would have resolved the matter.

In an order handed down in San Francisco on Friday, U.S. District Judge Richard Seeborg claimed that the payment amount was plucked out of “thin air” and questioned why $10 million of the settlement should go to the lawyers who filed the case:

there are serious concerns with the provision of the settlement agreement permitting plaintiffs to apply for up to $10 million in attorney fees without objection by Facebook.

The decision is significant because the judge called out a popular way that internet companies resolve online privacy complaints. In the past, courts have rubber-stamped similar deals involving Google Buzz (a social network onto which Google(s goog) dragged users against their will) and Facebook Beacon (a program where Facebook broadcast user purchases without permission). These and other cases produced multi-million dollar settlements but users saw nothing. Instead, the money was divided between lawyers and privacy groups who received so-called “cy pres” payments.

The case of the Sponsored Stories (in which the friends of one user saw him “Like” a jumbo tub of lubricant) has turned out differently. Rather than approve the deal, Judge Seeborg asked Facebook and the lawyers to come back and provide a better explanation of how they arrived at the numbers. He also noted that the California law under which the lawsuit was filed provides damages of $750 for each violation.

The judge acknowledged that it might be impractical for Facebook to make individual payouts to a class that may include more than 70 million members. But he added that he wanted more specifics before he let the company make a payment to privacy groups instead.

Seeborg also noted that the injunctive part of the settlement — the part that will allow Facebook users in the future to say whether or not their “Likes” can be used as endorsements — fails to provide any economic benefit to users.

The judge’s ruling is below; key parts of the decision are highlighted. For more on the story, see Wired and BusinessWeek.

Facebook Sponsored Stories Rejected

11 Responses to “Judge rejects Facebook ad settlement, cites $10 million lawyer pay-out”

  1. oftenmissunderstood malware at this page? in connection with my post?

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    Updated: 2012-03-02

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    Updated: 2011-09-24

  2. oftenmissunderstood

    I really don’t need to see what my friends are buying, it will make me sad for them, or jealous.:(
    I would like to see advertising offer choice, not ‘brand image’.

    I like this article Jeff John Roberts. :)

  3. Jack Thomas

    What’s the expression? “Pigs get fat, hogs get slaughtered.” – Finally a judge that “gets it.” When lawyers put THEIR interests first, and they very often do, we all lose.

  4. Richard Bernstein

    Facebook members must demand the right to OPT OUT of Sponsored Ads.

    Its ridiculous that Facebook thinks they can bully everyone into accepting Sponsored Ads.

    I dont want my face used in a Facebook ad.

    Facebook has network effects. Without network effects Mark and Co. would have had strong competition a long time ago.

    Facebook knows they can bully users. We have nowhere else to go. Everyone would have to leave Facebook for anyone to leave.

    We need the right to OPT OUT.

    The class action lawsuit settlement does not provide this to users.

    Facebook is only agreeing to allow kids under 18 to OPT OUT of Sponsored Ads.

    Do you want your face advertising for Facebook?

    And soon it will be automatic based on things you do on other websites.

    • We shouldn’t have the right to ‘OPT OUT’, we should have the right to ‘OPT IN’. It should not be the default choice that users are illegally used in sponsorship. Facebook is just corrupt beyond belief.
      Totally agree it will be based on things from other websites soon. Facebook knows ALL.

  5. Rapacious beyond GREEEEEEEEEEEEDY. Plaintiffs all, defendent nothing !!!!! It’s about time some/any Judge called this crap. Maybe the defendents should receive a weekly kick in the teeth from their counsel too !!1

  6. Virtuous

    Lawyers and these so-called privacy groups have gotten very greedy. If the money cannot go directly to the people that were harmed no money should be awarded to anyone, including the attorneys.

  7. Reblogged this on Briskin, Cross & Sanford, LLC and commented:
    Oy! It is the behavior like that squashed by Judge Seeborg in this case that make ALL lawyers look terrible. The fact that neither plaintiffs’ counsel nor Facebooks attorneys even contemplated just haow ridiculous a potential award of $10M in fees in a case where there would be $0 distributed the victorious (at least in settlement) class is simply stunning! Sometimes as a lawyer, it gets tiresome being vilified from what feels like all sides. But then fellow members of the bar go and pull boneheaded moves like this and it is obvious how lawyers get such a bad reputation. >(

    • Thanks for the comment, Byron. As a former attorney, I share your frustration — so many lawyers are doing useful, important work but over-grasping types like this crowd give the profession a bad reputation. Even the class action bar performs an important public function but in this case, they just overreached.

      • Jeff,

        Very much agreed. I am pleased, however, that the Judge in this case stepped forward and called the attorneys out on the fees carve out. While there seems to be an awful lot of folks moaning over the state of our judicial system (and lord knows is does have some warts), cases like this demonstrate that, by-in-large, the judiciary remains focused on yielding results that not only are in accordance with the law, but which do substantial justice for the parties involved.

    • RichardBernstein

      Its NOT about the money here. Who cares about the money? I don’t want my face used in a Facebook Ad. That’s the law. Facebook shouldn’t be allowed to get around the law.

      We need the right to OPT OUT at minimum.