Appeals Court Allows Facebook's Beacon Settlement To Go Forward

Facebook-Gavel-AHanding a victory to Facebook, a divided federal appellate court has decided against hearing additional arguments challenging the company's $9.5 million Beacon settlement.

The decision, issued Tuesday, leaves in place a prior ruling approving the deal, which calls for Facebook to fund a new privacy group. The agreement also requires the social networking giant to pay the 19 consumers who filed suit amounts varying from $1,000 to $15,000, while the company will pay around $3 million toward court costs and fees for the plaintiffs' lawyers who brought the case.

Facebook user and privacy advocate Ginger McCall challenged that settlement, arguing that Facebook would have too much control over the new organization, dubbed the Digital Trust Foundation. The foundation will be directed by a three-person board -- and Facebook will play a key role in selecting those people. (One of the board members was supposed to be Facebook's former public policy director, Tim Sparapani, but he left the company before the foundation was created.)

McCall also argued that the deal didn't compensate users who were harmed by the defunct Beacon ad program, which shared information about people's ecommerce activity with their friends.

Last year, a panel of the 9th Circuit voted 2-1 to uphold the settlement, originally approved by U.S. District Court Judge Richard Seeborg. The two judges in the majority wrote that the settlement was "fundamentally fair," while Senior Circuit Judge Andrew Kleinfeld dissented. He wrote that the deal "perverts the class action into a device for depriving victims of remedies for wrongs, while enriching both the wrongdoers and the lawyers purporting to represent the class."

McCall then asked the entire 9th Circuit to consider the case. On Tuesday, a divided court declined to do so. Six appellate judges dissented from that decision. They said in a written opinion that the settlement "failed to be reasonably certain to benefit the class," or to "advance the objectives" of the wiretap law -- the statute the consumers cited in their lawsuit.

A Facebook spokesperson said the company was "pleased with the court's decision upholding the settlement" and looks forward to establishing the Digital Trust Foundation.


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