Judge Rejects Facebook’s Sponsored Stories Class-Action Settlement

By David Cohen 

Earlier this month, U.S. District Judge Richard Seeborg expressed “significant concerns” about the settlement Facebook reached in June in a class-action suit over the use of its members’ likenesses in sponsored stories. The concerns were apparently significant enough to cause him to reject the settlement in a ruling late Friday.

Wired reported that the main concern expressed by Seeborg — who took over the case from District Judge Lucy Koh after she recused herself in July without giving a reason why — was the fact that Facebook said the settlement might cost it $100 million in advertising revenues, but only $20 million in a payout, and the $10 million the social network agreed to donate to charity “was merely plucked from thin air.”

Seeborg wrote in his order, as reported by Wired:

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 fact that the parties negotiated that “clear sailing” provision separately from the cy pres payment does not wholly eliminate the concern that class counsel may “have bargained away something of value to the class.”

If, and to the extent, that only a much smaller fee award can ultimately be justified here, then the fact that Facebook has agreed to pay up to $20 million (plus up to $300,000 in costs) to resolve this action may be of some consequence in evaluating the adequacy and fairness of the cy pres amount.

The judge added that under California law, each plaintiff could be awarded as much as $750, according to Wired. The settlement did not provide for the plaintiffs to receive any money.

Earlier this month, both sides responded to Seeborg’s concerns, Reuters reported, with plaintiffs’ attorney Robert Arns saying that his side was willing to settle because they feared that if they won a “massive verdict” against Facebook, it could be reversed in an appeal, while Facebook attorney Michael Rhodes said the two sides could not determine the value of each user’s photo appearing in sponsored stories, adding that the changes the social network was implementing are “unprecedented,” and saying:

I would submit to you that it has a significant benefit to the class. We are a commercial enterprise. There is no obligation to join Facebook for free.

Readers: What terms will emerge after the two sides go back to the drawing board?

Image courtesy of Shutterstock.