• by Wendy Davis  @wendyndavis, February 28, 2010

After conducting a hearing on Friday, a federal judge reserved decision about whether to approve a controversial $9.5 million settlement of a class-action lawsuit against Facebook stemming from its Beacon program.

If U.S. District Court Judge Richard Seeborg in San Jose, Calif. approves the agreement, Facebook would be required to shutter Beacon permanently and to contribute approximately $6 million to a new privacy foundation. The 19 individual consumers named in the complaint would receive amounts ranging from $1,000 to $15,000, but no other Facebook members would receive a monetary award. And attorneys who represented consumers against Facebook would receive approximately $3 million.

Overall, around 3.6 million Facebook members were affected by Beacon, according to court papers filed two weeks ago by Scott Kamber -- one of the attorneys who brought the class-action lawsuit.

The Beacon program, which Facebook launched in November of 2007, told Facebook members about friends' purchases at off-site retailers, like Zappos and Blockbuster. Initially it operated by default, but Facebook changed the program to opt-in within four weeks.

Several consumer advocacy groups, including the Electronic Privacy Information Center, and at least one Facebook user, Ginger McCall, have asked Seeborg to reject the settlement in its current form because Facebook will wield some control over the new foundation. The foundation's initial co-presidents will be Facebook's director of public policy Tim Sparapani and Berkeley Center for Law & Technology's Chris Jay Hoofnagle. Journalist and Internet safety advocate Larry Magid will serve as chief financial officer and secretary.

Philip Friedman, a lawyer representing McCall, says that he argued to Seeborg on Friday that no Facebook employees should sit on the board of the new foundation.

McCall also argued that the settlement falls short because it doesn't provide for monetary damages to Facebook members (except for the 19 who originally brought suit). McCall alleged in her papers that Beacon shared information about her Blockbuster queue on at least two occasions -- which, she argues, violated the federal Video Privacy Protection Act. That statute prohibits companies from sharing information about movie rentals and provides for damages of $2,500 per violation.

But not all consumer advocates oppose the settlement. The Center for Democracy & Technology filed papers arguing that the three initial board members are "outstanding choices" whose selection should lay to rest any concerns about Facebook's potential influence over the foundation.

Facebook has said that the new foundation "will proactively improve the experience of all Internet users."