• by Wendy Davis  @wendyndavis, December 20, 2010

Facebook has asked an appellate court to dismiss a privacy activist's challenge to the company's $9.5 million settlement of a class-action privacy lawsuit stemming from the Beacon ad program.

The trial judge "correctly found the settlement to be fair, reasonable and adequate," Facebook argues in papers filed last week with the 9th Circuit Court of Appeals.

The settlement stems from Facebook's now defunct Beacon ad program -- a controversial marketing platform launched in November of 2007 that informed members about their friends' e-commerce activity on outside sites.

At launch the program operated by default, so that people who didn't opt out ended up sharing information about their purchases with all of their Facebook friends. The feature program caused an immediate backlash, and approximately three weeks after launching Beacon, Facebook said it would stop blasting notifications about users' retail activity without their explicit permission. (Shortly after that, Facebook offered users a way to permanently opt out.)

The program also sparked a class-action lawsuit brought on behalf of 19 Facebook users. They reached a settlement with Facebook last year, but privacy activist Ginger McCall and a handful of others opposed that deal.

The settlement calls for Facebook to launch a new privacy foundation, which will be directed by a three-person board that includes Facebook's Director of Public Policy, Tim Sparapani. The deal also requires Facebook to permanently shutter Beacon, but doesn't require the company to compensate users except for the 19 consumers who filed suit. Members of that group stand to receive amounts varying from $1,000 to $15,000.

McCall, herself both a Facebook user and an attorney with the Electronic Privacy Information Center, argued that the settlement should be rejected because Facebook will wield too much influence over the new foundation. In October, she asked the 9th Circuit Court of Appeals to vacate U.S. District Court Judge Richard Seeborg's decision to approve the deal.

Facebook disputes that it will control the new foundation, arguing that Sparapani won't have vote power over which projects will be funded by the new organization. "Although Mr. Sparapani may reasonably be expected to exercise his influence against any actions that could clearly and directly harm Facebook, the notion that the Foundation will be under Facebook's control is baseless conjecture," the company argues.

McCall also alleges that the deal's benefit is "illusory" because the company had already effectively shuttered Beacon, but Facebook denies this claim. "Although Beacon was altered before the settlement, it remained in existence," the company argues.

Lawyers for the 19 class-action plaintiffs also assert that Facebook's initial position in settlement talks was that the company wanted to keep Beacon operational. However, the lawyers contend, Facebook was unable to configure the program to make the opt-in feature work properly.

McCall's court papers back up the claim that the opt-in never functioned as expected. She alleges that Facebook broadcast her activity at Blockbuster.com to her friends in February of 2008 without her consent-- even though Beacon was supposed to be opt-in at that point.

McCall is represented by outside attorneys including Public Citizen (which is representing MediaPost in an unrelated matter.)