• by Wendy Davis  @wendyndavis, March 21, 2014

Facebook's $20 million settlement of a lawsuit stemming from its sponsored stories ads has caught the attention of the Federal Trade Commission, which this week filed papers in an appeal challenging the deal.

The FTC argues in its legal papers that the judge who approved the settlement incorrectly said that the federal Children's Online Privacy Protection Act potentially trumps state laws governing the privacy of teens. “Nothing in the language, structure or legislative history of COPPA evinces a Congressional intent to displace state protections of teenagers’ online privacy in their entirety,” the FTC says in a friend-of-the-court brief filed on Thursday with the 9th Circuit Court of Appeals. “COPPA was enacted in the shadow of state privacy laws -- including state protections that are particular to minors -- that had existed for nearly a century.”

The settlement calls for Facebook to pay $15 each to around 600,000 users who were featured in “sponsored stories” -- ads featuring users' names and images and shown to their friends. The deal also requires Facebook to pay several million dollars to various nonprofits and organizations.

The company revised its terms of service to require adult users to state they give permission for their names and photos to be shown in ads. Users under 18 must represent that at least one parent agrees.

The deal, which was approved by U.S. District Court Judge Richard Seeborg in the Northern District of California, resolved a class-action lawsuit alleging that Facebook's sponsored stories program violated a California state law prohibiting companies from using adults' names or photos in ads without their consent and banning the use of teens' names or photos in ads without parental consent.

Six other states also have laws restricting companies from using minors' names and images in ads.The settlement has drawn opposition from some Facebook users, parents of users and advocacy groups, which are asking the 9th Circuit to vacate the deal.

Among other arguments, opponents say that the terms of the deal actually enable Facebook to continue using minors' names in ads without parental permission -- even though doing so potentially violates the law in seven states. (Facebook is ending its old “sponsored stories” program next month, but plans to still show users' names and photos in social ads.)

When Seeborg allowed the settlement to go through, he ruled that the federal children's privacy law “may well” invalidate state laws giving teens additional privacy protections. The federal law prohibits Web site operators from collecting personal information from children younger than 13.

The FTC takes issue with Seeborg's interpretation of the federal children's privacy law. “Nothing in COPPA’s language, structure or legislative history indicates that Congress intended for that law to preempt state law privacy protections for people outside of COPPA’s coverage, including teenagers,” the FTC says. The agency is asking the 9th Circuit to reject Seeborg's “erroneous views” about the issue.