• by Wendy Davis  @wendyndavis, February 19, 2010

Aligning itself with critics of a proposed $9.5 million settlement of a lawsuit stemming from the Beacon program, the charitable organization Rose Foundation says the potential resolution will "shortchange" Facebook members.

The proposed settlement calls on Facebook to pay around $6 million to launch a new privacy foundation to fund privacy-related projects, with most of the remaining settlement funds going to attorneys' fees. The foundation would initially be run by three board members -- one of whom would be Facebook's director of public policy, Tim Sparapani.

Tim Little, executive director of the Rose Foundation -- which makes grants to other groups -- argues that the arrangement is problematic because the foundation appears to lack independence from Facebook. "How can you put them in charge of the grants?" he asks. "Several of our grantees have raised questions about Facebook's handling of online privacy issues," he says.

If approved, the settlement would resolve a lawsuit filed by 19 consumers who alleged that their privacy was violated by Facebook's Beacon ad program, which told members about their friends' off-site ecommerce activity.

Little also says in a letter to the court that he has "strong concerns about any Facebook employee serving on the new foundation's board."

"How could any Facebook employee reasonably be objective in reviewing a grant application from any entity that currently or at some point in the past advocated a position that, while beneficial to online consumer privacy, was deemed by Facebook to be contrary to Facebook's business interests?" he asks in a letter to U.S. District Court Judge Richard Seeborg in San Jose, who is presiding over the case.

Little also contends that creating a new foundation will prove "inefficient and needlessly expensive" due to administrative costs. He estimates the start-up costs "could significantly exceed" $50,000. "Also, this new foundation will face a learning curve because established foundations already have these procedures in place," he says in the letter.

The Rose Foundation has been designated as the recipient of settlement funds in other privacy lawsuits. Since 2001, the foundation's consumer privacy fund has granted more than $4.2 million for privacy-related projects to organizations like the Center for Digital Democracy, Consumer Watchdog and the World Privacy Forum. Little says in his letter that the group's privacy fund is now out of money.