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Facebook's Sponsored Stories Costs it $20 Million, Nets Users $15

Facebook's Sponsored Stories Costs it $20 Million, Nets Users $15

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Published by FindLaw
Facebook will pay $20 million for putting users' names and faces in its “Sponsored Stories” advertising program without their permission.

A federal judge granted final approval (see the full order below) to settle the lawsuit over targeted advertising.

Qualified users who joined the class action by the May 3, 2013 deadline will receive $15 from Facebook for having their photos and names featured in "Sponsored Stories."
Five plaintiffs originally filed suit in 2011 because the site shared users' "likes" of certain advertisers with friends without paying them or allowing them to opt out.

A "Sponsored Story" is an advertisement that appears on a member's Facebook page and generally consists of a friend's name, profile picture and an assertion that the person "likes" the advertiser.

The case has highlighted tension between privacy concerns and Facebook's drive to monetize user content.
Facebook will pay $20 million for putting users' names and faces in its “Sponsored Stories” advertising program without their permission.

A federal judge granted final approval (see the full order below) to settle the lawsuit over targeted advertising.

Qualified users who joined the class action by the May 3, 2013 deadline will receive $15 from Facebook for having their photos and names featured in "Sponsored Stories."
Five plaintiffs originally filed suit in 2011 because the site shared users' "likes" of certain advertisers with friends without paying them or allowing them to opt out.

A "Sponsored Story" is an advertisement that appears on a member's Facebook page and generally consists of a friend's name, profile picture and an assertion that the person "likes" the advertiser.

The case has highlighted tension between privacy concerns and Facebook's drive to monetize user content.

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Categories:Types, Business/Law
Published by: FindLaw on Aug 27, 2013
Copyright:Attribution Non-commercial

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 IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF CALIFORNIASAN FRANCISCO DIVISIONANGEL FRALEY, et al.Plaintiffs,v.FACEBOOK, INC.,Defendant. ____________________________________/
 
 No. C 11-1726 RS
ORDER GRANTING MOTION FORFINAL APPROVAL OFSETTLEMENT AGREEMENT
I. INTRODUCTIONThe proposed settlement class in this action consists of some 150 million members of defendant Facebook, Inc.’s eponymous social network website, whose names and/or likenessesallegedly were misappropriated to promote products and services through Facebook’s so-called “Sponsored Stories” program. The parties now seek final approval of a settlement that will result insmall cash payments to the relatively low percentage of class members who filed claims, and 
cy pres
 payments of several millions of dollars to certain organizations involved in internet privacy issues.The settlement also requires Facebook to make changes to the Statement of Rights and Responsibilities (“SRRs”) it contends governs use of its site, and to implement additionalmechanisms giving users greater information about, and control over, how their names and likenesses are employed in connection with Sponsored Stories.
Case3:11-cv-01726-RS Document359 Filed08/26/13 Page1 of 14
 
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The original settlement agreement proposed by the parties did not win preliminary approval.The parties responded with a new proposal, earning such approval and triggering notice to potentialclass members. A number of objectors contend that the updated settlement proposal should notreceive final approval for a variety of reasons. Among the objections most vigorously advanced isan argument that the settlement does not appropriately handle issues related to minors.The record leaves no doubt that this settlement was the product of arms-length negotiationsand compromise. Although the monetary relief to each class member is relatively small and the percentage of class members who submitted claims is limited, the settlement as a whole providesfair, reasonable, and adequate relief to the class, in light of all the circumstances, including the low probability that a substantially better result would be obtained through continued litigation. Theinjunctive relief, while not incorporating all features that some of the objectors might prefer, hassignificant value and provides benefits that likely could not be obtained outside the context of anegotiated settlement, even if plaintiffs were to prevail on the merits.If “Sponsored Stories” had undisputedly violated the law and represented the gross invasionof class members’ rights as characterized by the complaint, then the adequacy of the settlementwould, of course, be viewed through a very different lens. Plaintiffs’ allegations and theories,however, remain largely untested, having only survived a motion to dismiss. Substantial barriers torecovery remained, not the least of which would be the requirement to demonstrate that thecomplained-of conduct caused cognizable harm. Placing those and other factors discussed below inthe balance, the proposed settlement warrants final approval.II. STANDARD OF REVIEWA district court’s approval of a class-action settlement must be accompanied by a findingthat the settlement is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e). The fairness of asettlement must be evaluated as a whole, rather than by assessing its individual components.
 Hanlon v. Chrysler Corp.,
150 F.3d 1011, 1026 (9th Cir. 1998). Crucially, the question whether asettlement is fundamentally fair within the meaning of Rule 23(e) is not the same as asking thereviewing court if perfection has been achieved.
See id.
at 1027. Although Rule 23 imposes strict
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 procedural requirements on the approval of a class settlement, a district court’s only role inreviewing the substance of that settlement is to ensure that it is “fair, adequate, and free fromcollusion.”
See id.
 A number of factors guide in making that determination, including:the strength of the plaintiffs’ case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amountoffered in settlement; the extent of discovery completed and the stage of the proceedings; theexperience and views of counsel; the presence of a governmental participant; and thereaction of the class members to the proposed settlement.
 Id 
. at 1026 (hereinafter the “
 Hanlon
factors”). Additionally, when (as here) the settlement takes place before formal class certification, settlement approval requires a “higher standard of fairness.”
See id.
More exacting review of class settlements reached before formal class certification ensuresthat class representatives and their counsel do not secure a disproportionate benefit “at the expenseof the unnamed plaintiffs who class counsel had a duty to represent.”
See id.
at 1027;
see also In reGen. Motors Corp. Pick–Up Truck Fuel Tank Prods. Liab. Litig.,
55 F.3d 768, 787 (3rd Cir. 1995)(explaining that “[w]ith less information about the class” at the early stage before formal classcertification, the court “cannot as effectively monitor for collusion, individual settlements, buy-offs(where some individuals use the class action device to benefit themselves at the expense of absentees), and other abuses”).III. DISCUSSION
1
 A. Fairness and AdequacyThis settlement was achieved through negotiations mediated by a renowned retired federalmagistrate judge following months of active, adversarial, litigation. The viability of the pleadinghad been tested through motion practice, and class certification issues were fully briefed. The partieshad engaged in substantial discovery. There is no basis to conclude that the negotiations were
1
The factual and procedural background of this litigation has been set forth in prior orders and willnot be repeated here.
Case3:11-cv-01726-RS Document359 Filed08/26/13 Page3 of 14

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