Facebook Privacy Settlement ‘Muddles’ Law

Six federal appellate judges dissented Tuesday from approval of Facebook’s $9.5 million settlement of a privacy protection class action because the money won’t benefit class members, but will go to a charity created specifically to receive the money.

The six 9th U.S. Circuit Court of Appeal judges are far short of the 15-vote majority needed to grant rehearing of the appeal, known as en banc review.

Facebook settled class claims over allegations the company’s now defunct “Beacon” service violated members privacy rights. Back in 2007, Facebook launched Beacon, which would broadcast to a user’s friends their Internet activity. If they bought something or rented a movie online the transaction would be blasted to a user’s entire network. But Facebook didn’t ask for permission to put people in the program.

This resulted in angry members and lots of negative publicity.

Facebook eventually disabled the service but a group of 19 people filed a class action. Facebook agreed to settle for $9.5 million, with $3 million set aside for attorney fees and the rest going – not to class members but to a charity set up to focus on privacy rights.

It was approved by U.S. District Judge Richard Seeborg in San Francisco and later a three-judge panel of the appeals court. Objectors to the deal asked for full court reconsideration.

Using remnant portions of settlements, when the bulk has gone to class members, is known as a cy pres award. Class actions have used them increasingly, not for remnants, but as major recipients of settlement funds.

Judge Milan Smith Jr. said the charity, the Digital Trust Foundation, has no track record of what it does and its charter is too broad to pin down how it will spend the money. It makes a “muddle” of circuit law, he said.

“An appropriate cy pres recipient must be dedicated to protecting consumers from the precise wrongful conduct about which plaintiffs complain,” Smith wrote. “But an organization that focuses on protecting privacy solely through ‘user control’ can never prevent unauthorized access or disclosure of private information where the alleged wrongdoer already has unfettered access to a user’s records.

The DTF can teach Facebook users how to create strong passwords, tinker with their privacy settings, and generally be more cautious online, but it can’t teach users how to protect themselves from Facebook’s deliberate misconduct,” he wrote.

Smith was joined by Chief Judge Alex Kozinski, Judges Diarmuid O’Scannlain, Jay Bybee, Carlos Bea and Sandra Ikuta.

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


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