Facebook Settlement Was 'Overly Charitable'

Normally, when a class-action law suit gets settled, that’s the end of it, but when Facebook recently made a settlement in a privacy suit, they were criticized for being overly generous. The 2008 suit has to do with Facebook’s alleged improper sharing of inforrmation about users online purchases and other activities.

The criticism stems from a common practice in U.S. courts. If a class-action suit’s settlement monies are not easily distributable to members in the suit (or if the cost of doing so exceeds the settlement), then a judge can award part or all to a charity of their choosing. Usually, a judge will pick a charity relevant to the court case, but some judges have been known to choose charities that they have ties to, weak or strong.

In this case, the judge in question chose a San Francisco privacy rights foundation to receive the US$9.5M settlement, minus the 30% fees going to the class-action lawyers. Sounds okay, right? Well apparently Facebook will have a hand in setting up the foundation, writing the bylaws, and in picking one board member. Public Citizen, a D.C.-based consumer rights group who filed objection to this settlement, is quoted in the Wall Street Journal [subscription required]:

“In essence, Facebook is paying itself money to gain a broad release of its users’ legal claims.”

Public Justice, another D.C.-based organization, has suggested that unclaimed funds in such cases should go to the state where the case was heard. Public Citizen’s objection of the settlement has yet to be ruled on by a San Francisco federal judge.