Facebook's $20 Million 'Sponsored Stories' Settlement Wins Approval

A federal judge has signed off on a class-action settlement requiring Facebook to pay $15 to around 600,000 users who were featured in sponsored stories ads.

“The record leaves no doubt that this settlement was the product of arms-length negotiations and compromise,” U.S. District Court Judge Richard Seeborg in San Francisco wrote in an order approving the settlement.

The settlement also calls for Facebook to pay several million dollars to 14 nonprofits and schools, including the digital rights groups Center for Democracy and Technology and Electronic Frontier Foundation. The total value of the settlement, including around $5 million that Facebook will pay to the consumers' lawyers, comes to $20 million.

The deal resolves a class-action lawsuit filed by a group of consumers who alleged that Facebook's sponsored stories program violates a California law governing endorsements. That law provides that companies must obtain adults' permission before using their names or images in ads. When minors' names or images are used in ads, companies must obtain parental consent.

California's endorsement law calls for damages of $750 per violation -- significantly more than the $15 that Facebook will pay. The discrepancy between the potential sanctions and the small amount that users will receive spurred some people to object to the settlement.

But Seeborg wrote that the deal should be approved despite the objections, noting that it remains unclear whether Facebook's sponsored stories programs actually violated California's endorsement law.

“If 'Sponsored Stories' had undisputedly violated the law and represented the gross invasion of class members’ rights as characterized by the complaint, then the adequacy of the settlement would, of course, be viewed through a very different lens,” Seeborg wrote. But he added that the consumers' theories “remain largely untested.”

“Substantial barriers to recovery remained, not the least of which would be the requirement to demonstrate that the complained-of conduct caused cognizable harm. Placing those and other factors discussed below in the balance, the proposed settlement warrants final approval,” Seeborg wrote.

The deal also requires Facebook to give adult users more control over their appearance in ads and to allow minors to opt out of sponsored stories. Some people who objected to the settlement pointed to recent news reports stating that Facebook is ending the sponsored stories program. But Seeborg discounted those criticisms. “The news reports to which objectors point do not show that the injunctive relief will be rendered 'meaningless,' even to the extent the assertions in those articles could be assumed true,” the judge wrote.

Seeborg previously rejected an earlier version of the settlement that would have required Facebook to pay $10 million to nonprofits and schools and $10 million in attorneys' fees.

The deal was then revised to include payment of up to $10 to users who were featured in sponsored stories ads. People had until May to submit claims, but only around 600,000 users did so, according to papers filed by Facebook in June. Given that so few people submitted claims, the settlement award was increased to $15 per user.


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