Judge Rejects Facebook Sponsored Stories Settlement

Late last Friday a federal judge in California rejected a proposed settlement in response to a lawsuit claiming that Facebook's "Sponsored Stories" advertising program violated California law by publicizing users' "likes" of certain advertisers without paying them or giving them a way to opt out. Facebook and attorneys representing the putative plaintiff class had reached a settlement, which called for Facebook to make certain changes to its Statement of Rights and Responsibilities, and to implement certain additional mechanisms to give users greater information about, and control over, how their names and likenesses are employed in connection with Facebook's Sponsored Stories program. The agreement also contemplated Facebook making a cy pres payment of $10 million dollars to certain organizations involved in Internet privacy issues, and provided that plaintiffs may apply for an attorney fee award of up to $10 million, plus $300,000 in costs, without objection by Facebook.

Among the concerns cited by the judge in rejecting the proposed settlement were:

•  The propriety of a settlement that provides no monetary relief directly to class members;

•  Whether the amount of the cy pres payment was fair, adequate and reasonable;

•  The lack of clarity as to what actions Facebook would take pursuant to the injunctive relief provisions of the settlement; and

•  The amount of attorneys' fees.

The judge noted that "Although the legal standard applicable to preliminary approval is liberal, in this instance there are sufficient questions regarding the proposed settlement that it would not be appropriate simply to grant the motion and postpone resolution of those issues to final approval, particularly given the burden and expense to the parties of going forward with notification to potential class members and final approval proceedings, and the confusion to potential class members that likely would result were the settlement ultimately disapproved." Clearly the judge was not satisfied with the amount of information submitted by Facebook and the plaintiffs in support of the proposed settlement and the rejection of the current proposal (along with the messages conveyed by the judge's concerns) may result in a more expensive and stringent settlement for Facebook over one of the most important aspects of Facebook's business: its advertising programs.

*Mr. MacDonald was formerly a lawyer with Olshan's IP Department.

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