Sponsored Stories Settlement Faces Challenge

Some Facebook users are asking a judge to put the kibosh on the proposed settlement of a class-action lawsuit about the sponsored stories program.

The deal calls for Facebook to pay $10 million to various organizations and $10 million to lawyers who sued the company on behalf of users. The agreement also calls for Facebook to give users more control over whether they appear in sponsored stories -- though the details still aren't known. Currently, the program publicizes users’ “likes” to their friends.

If accepted by U.S. District Court Judge Lucy Koh in San Jose, Calif., the deal would resolve allegations  that Facebook violated a California law giving consumers the right to control the use of their names and images in endorsements. That law also specifies that minors' images can't be used in endorsements without their parents' permission.



The deal came about in a lawsuit that was brought by a group of consumers including Angel Fraley, Paul Wang and Susan Mainzer; Fraley and Wang later asked to withdraw from the case, but their names are still included in the case's title.

But the potential snag is that a separate group of people also sued the company for violating the California law. The plaintiffs in that case -- parents of minors who belong to Facebook -- don't agree with the terms of the proposed settlement in the case brought by Fraley.

Those plaintiffs have filed a motion seeking to intervene in the Fraley case and oppose the settlement, which they call "clearly inadequate."

"The proposed settlement offers no relief to the class while providing substantial awards to counsel and carte blanche to Facebook to continue its unlawful conduct," they argue.

They raise several specific objections to the settlement, including that the attorneys in the Fraley matter will receive $10 million, while users don't receive any money. That argument could gain traction given that courts increasingly are scrutinizing class-action settlements that provide for large attorneys' fees. In one recent case, the 9th Circuit rejected a tentative settlement involving Motorola. Consumers had alleged that Motorola didn't disclose the risk of hearing loss posed by Bluetooth headsets. The rejected settlement called for Motorola to donate $100,000 to various health-related organizations, and pay $800,000 to the attorneys who filed suit.

Koh will hold a hearing about the proposed settlement on July 12.

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