Facebook: Sponsored Stories Settlement Gives Users 'Windfall'

Facebook is asking a federal judge to grant final approval to a $20 million deal that would resolve litigation about “sponsored stories” ads.

The proposed settlement is “fair, reasonable, and adequate and should be finally approved,” the social networking service says in new court papers, filed late last week with U.S. District Court Judge Richard Seeborg in the Northern District of California.

The deal calls for Facebook to pay users up to $10 if they were featured in a "sponsored stories" ad. The company says in its latest court papers that more than 600,000 users submitted claims for the payout before the deadline last month.

Those people “will receive a windfall,” Facebook says in its motion seeking approval of the settlement. “They paid Facebook no money at all and suffered no actual economic damages, much less injury. Yet they are being paid an amount that far exceeds any profit Facebook allegedly earned by using their names and likenesses,” the company says.

If approved, the deal will resolve a class-action lawsuit by a group of consumers alleging that Facebook's sponsored stories program violates a California law about endorsements. That law says companies need people's permission before using their names or images in ads. In the case of minors, companies need parental consent.

In addition to the payout to Facebook users, the proposed settlement also calls for the attorneys who sued Facebook to receive up to $7.5 million in fees. Any money left over will be distributed to various nonprofits.

The agreement also calls for Facebook to revise its terms of service so that users state they give permission for their names and photos to be shown in ads. Users under 18 would have to represent that at least one parent agrees.

The deal's terms drew objections from some advocates, including the watchdog Public Citizen. That organization says Facebook shouldn't be permitted to use children's names in ads, even if they can opt out, without more proof that their parents have consented.

Public Citizen argues that the deal effectively authorizes Facebook to continue using minors' names and images in ads without parental permission -- despite the fact that seven states explicitly prohibit companies from doing so. “The proposed settlement authorizes Facebook to violate the law of at least seven states,” the advocacy organization argued in recent court papers.

The Children's Advocacy Institute at the University of San Diego's Center for Public Interest Law also says that Seeborg should scuttle the deal. That group says children aren't likely to ever see the portion of the terms of use that requires parental permission, let alone ask their parents for consent to appear in ads.

Seeborg will hold a hearing on June 28 about the settlement.


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