Bloomberg News

Facebook ‘Sponsored Stories’ Accord Wins Tentative OK

December 04, 2012

Facebook Inc. (FB:US) persuaded a judge to grant preliminary approval of a $20 million settlement of a lawsuit claiming it used subscribers’ names without their permission to advertise products in its “Sponsored Stories.”

Under the revised settlement, users can claim a $10 payment, and funds left over will go to advocacy groups. An earlier settlement proposed by the company would have given users no payment, while lawyers for plaintiffs would receive as much as $10 million, according to filings in federal court in San Francisco.

“The court is satisfied that the revisions to the terms of the settlement are sufficient to warrant preliminary approval under the applicable standards,” U.S. District Judge Richard Seeborg, who rejected the arlier proposal, said in an order yesterday. He scheduled a June hearing to consider final approval of the agreement.

Facebook, the world’s largest social-networking service, was accused in a 2011 lawsuit of appropriating the names, photographs and identities of users to advertise products without their consent. “Sponsored Stories” was a “misleading advertising scheme” using material posted by Facebook users on their profile pages, according to the complaint.

The company called the claims “meritless” in a court filing.

Revised Accord

The $20 million fund in the revised accord is enough to pay $10 to 2 million users, of the more than 120 million who may be eligible to file a claim. If so many of the users affected by the practice seek the payment that dividing the $20 million among them would provide less than $5 per user, all the money could be donated to advocacy groups, according to court filings.

Facebook, based in Menlo Park, California, also agreed to revise its terms of usage so subscribers can more easily see when they’re being shown as endorsers of products and games for which they clicked a “like” button.

The revised settlement doesn’t spell out how much the users’ lawyers will be paid; they must submit a fee request to Seeborg for approval. The fees will come out of the settlement fund, according to court filings.

The case is Fraley v. Facebook Inc., 11-cv-01726, U.S. District Court, Northern District of California (San Jose).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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