• by Wendy Davis  @wendyndavis, October 8, 2012

Facebook has agreed to pay users up to $10 if they were featured in a "sponsored stories" ad, under revised settlement terms of a class-action lawsuit.

The revised settlement agreement, filed Friday, requires Facebook to create a fund of up to $20 million to resolve claims that the sponsored stories ads violated a California law about endorsements. That law provides that companies need people's permission before using their names or images in ads.

The deal says that a portion of the settlement fund (the amount that's left after taxes, court costs and reimbursing attorneys) will be used to compensate individuals in the U.S. who appeared in sponsored ads. Those people can put in for $10 each. But how much money -- if any -- they'll receive will depend on how many users submit claims.

If so many people put in claims that the fund can't pay all of them $10, users will receive a pro rata share. But if the pro rata share drops to less than $5, the judge will decide whether each user should receive a small award, or whether the entire amount earmarked for users should instead go to public interest organizations and law schools.

The revised settlement also clarifies that Facebook will allow minors under 18 to opt out of appearing in all sponsored stories ads. Facebook users over the age of 18 will have the ability to prevent appearing in future sponsored stories ads -- although apparently only on an advertiser-by-advertiser basis.

The deal still must be accepted by U.S. District Court Judge Richard Seeborg in the Northern District of California. In August, Seeborg rejected a settlement calling for Facebook to donate $10 million to various advocacy organizations and law schools, but nothing to Facebook users featured in sponsored stories.

Seeborg said that one of the problems with the previous deal was that users wouldn't receive any monetary damages. The California misappropriation law at the heart of the lawsuit provides for damages of $750 per incident.

The agreement filed last week doesn't guarantee that users will receive payment, but it leaves open the possibility. That alone could make a significant difference to the judge, says Internet legal expert Venkat Balasubramani. "The fact that there is the possibility of monetary relief probably makes it a lot easier for the judge to approve it," he says.

The new settlement allows attorneys who represented the consumers to apply for fee reimbursement, but also leaves Facebook free to contest the amount the attorneys will receive. That differs from the previous agreement, which called for Facebook to refrain from challenging up to $10 million in reimbursement.