• by Wendy Davis  @wendyndavis, June 29, 2010

Facebook's $9.5 million settlement of a class-action lawsuit stemming from the Beacon program is facing additional legal challenges from users who say they should have been compensated for alleged privacy violations.

The users, Benjamin Trotter and Megan Marek, late last week filed an appeal of U.S. District Court Judge Richard Seeborg's decision approving the controversial deal. They join privacy advocate Ginger McCall, who last week filed a separate appeal of the settlement.

The agreement calls for Facebook to shutter Beacon and create a $9.5 million settlement fund, two-thirds of which will be used to launch a new privacy foundation; the remainder will go to attorneys' fees). That organization will be directed by a three-person board that includes Facebook's director of public policy, Tim Sparapani.

The new foundation won't launch until the appeal is resolved, Facebook said. Spokesperson Barry Schnitt said in a statement that the company is "disappointed to see an additional delay of the foundation's important work." He added that there were no grounds to vacate Seeborg's decision approving the settlement.

The deal stems from a class-action lawsuit filed by 19 consumers over Facebook's Beacon ad program, which told users about their friends' online retail activity. The program initially operated by default, but Facebook later moved to an opt-in system.

Facebook also has agreed to pay the 19 plaintiffs amounts ranging from $1,000 to $10,000. No other Facebook members would receive any monetary compensation under the deal.

Trotter and Marek first objected to the settlement in February, arguing that it was "woefully inadequate" because it didn't involve any monetary payment to the vast majority of people whose privacy was allegedly violated by Beacon. They also argued that the settlement gave Facebook too much control over the new foundation. "The fact that the foundation is to be administered by Facebook and its minions in the absence of clear and concise guidelines for external independent oversight and monitoring is a major problem which cannot be glossed over," they argued.

David Stampley, a partner in KamberLaw -- the firm that represented the plaintiffs -- said the decision approving the settlement was correct and that consumers will benefit from a speedy resolution of the appeal.