Facebook’s ‘Beacon’ Shopping Settlement Ok

Didn’t want a friend on Facebook to know you bought those concert tickets online for the same night you said you couldn’t meet them for dinner?  Facebook’s Beacon advertising program, launched in 2007, told your “friends” when you shopped at Overstock.com or booked trips at Hotwire.

Unhappy Facebook users sued. On Thursday, the 9th U.S. Circuit Court of Appeals upheld a controversial $9.5 million settlement that gave nothing to 3.6 million class members, $3 million to lawyers and a donation of $6.5 million to a new Digital Trust Foundation.  The deal included Facebook’s appointment of its public policy director Timothy Sparapani to the foundation’s board.  Sparapani was also a former counsel for the ACLU.

Some class members didn’t like the terms and sued to overturn the settlement.

One bright spot for Facebook users, the deal also required the company to permanently turn off the Beacon program.

Despite objections to the deal, the three-judge panel voted 2-1 to approve the settlement and rejected the assertion that Sparapani’s place on the Digital Trust’s board amounted to a conflict.

The payment to the DTF is what’s known as a cy pres award, usually referring to the small remnant amount left in a trust at the end of litigation, after the parties have been paid.  It is usually too small to distribute so judge’s award it to the next best thing, usually a charity related to the issue in dispute in the lawsuit.

“We find no substance in objectors’ claim that the presence of a Facebook employee on DTF’s board of directors categorically precludes DTF from serving as the entity that will distribute cy pres funds,” wrote Judge Procter Hug for the majority.

In dissent, Judge Andrew Kleinfeld said, “This settlement perverts the class action into a device for depriving victims of remedies for wrongs, while enriching both the wrongdoers and the lawyers purporting to represent the class.”

He said many people buy things on the Internet precisely because they want more privacy.

The Beacon program was described as “allowing its members to share with friends information about what they do elsewhere on the Internet.”  It updated personal profiles to show what they were doing on other company websites that had contracted with Facebook to participate in Beacon.

If you rented a movie at Blockbuster, all the friends in your Facebook network knew you spent another Friday night alone at home.

Facebook gave members the chance to block the alerts but never required their affirmative consent before sending the information.

After a wave of complaints, Facebook discontinued the program.

But 19 plaintiffs sued in a class action in San Francisco, ultimately settling in 2009.

Terms of the deal included Facebook permanently terminating the Beacon program, paying $9.5 million in exchange for release from all class claims.  But with 3.6 million class members it was impractical to pay such tiny individual amounts, so they agreed to create a new charity, to work on privacy issues and pay it $3.5 million.

The Digital Trust Foundation would sponsor programs designed to educate users, regulators and businesses on the critical issues of protecting personal privacy.

But 108 class members opted out of the deal and four filed written objections.


They objected to Facebook appointing a member to a newly created foundation, rather than paying to existing groups dedicated to privacy issues.  In addition, they also argued that the amount of the settlement, $9.5 million, was too low.

The class objectors said the Video Privacy Protection Act allows $2,500 per violation for disclosure of personally identifiable information about consumers of video tape service providers.  They argue the trial judge did not take the VPPA claims potential for much larger recovery into account.

The court rejected that claim as well.

“A $9.5 million class recovery would be substantial under most circumstances, and we see nothing about this particular settlement that undermines the district court’s conclusion that it was substantial in this case,” Hug said.

The court upheld the deal approved by U.S. District Judge Richard Seeborg.

Case:  McCall v. Facebook, Inc. No. 10-16380






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