UPDATE: Judge Nixes Facebook 'Sponsored Stories' Suit Settlement Deal

 (Photo credit: Wikipedia)

Earlier this month, United States District Court for the Northern District of California Judge Richard Seeborg withheld his blessings from the proposed $20 million settlement in Fraley v. Facebook (Case No. 5:11-cv-01726), a putative class action suit arising from Facebook's Sponsored Stories ads.

Under the proposed settlement, Facebook would revise its Statement of Rights & Responsibilities to give members more of a voice in how their personal information is used and agree to dispense $10 million in cy pres payments among various children's, electronic privacy and consumer advocacy groups. Judge Seeborg caught the case after presiding Judge Lucy H. Koh recused herself the day before the settlement hearing (see "TUOL" post 7/12/12). Plaintiffs contend that the Sponsored Stories ads violate California's Right to Publicity ("ROP") statute [Calif. Civ. Code sec. 3344] (see "TUOL" post 12/22/11).

Judge Seeborg refused to sign off on the settlement agreed-to by the parties in part, because it allows for $10 million in legal fees, but nary a penny for the Facebook users purportedly harmed by the Sponsored Stories ads. The $10 million that would be distributed to the various nonprofit advocacy groups is based on ROP, which assesses $750 in statutory damages per infraction. Judge Seeborg said the parties failed to justify the cy pres payments to the groups merely on the argument that it would be unfeasible to divvy up the amount among the "injured" Facebook users.

The court invited the parties either to modify the proposed settlement or to resubmit the resolution with further legal arguments about why it should be approved. Stay tuned.

UPDATE: Judge Withdraws from Facebook Privacy Case Day Before Settlement Hearing

(Photo credit: Wikipedia)United States District Court for the Northern District of California Judge Lucy H. Koh has recused herself without explanation from hearing Fraley v. Facebook (Case No. 5:11-cv-01726) the day before a scheduled settlement hearing, Reuters reports.

In a 38-page decision last year, Judge Koh denied the social media giant's motion to dismiss the putative class action suit based on Facebook's "Sponsored Story" Ads, finding the plaintiffs presented an actionable claim under California's Right of Publicity law [Calif. Civ. Code sec. 3344]. (See "TUOL" post 12/22/11.)

The parties reached a settlement under which Facebook purportedly would pay $20 million and users would have more of a say in how their personal information was used, according to the Reuters article.  The terms of any proposed resolution of the case, however, require the presiding judge's approval.

Scheduled dates to hear motions in the case were vacated by Judge Koh and she has asked that another judge take over the matter.

UPDATE: Sponsored Story Suit Put to Rest by Facebook?

(Photo credit: Wikipedia)It hasn't been the best of weeks for social media leviathan Facebook. Its stock has performed poorly since its IPO ("It's Probably Over-valued"), shareholder suits already have been filed, and inquiries into the launching itself are underway.

Now comes word, via the Wall St. Journal Law Blog (Blogs.wsj.com) that Facebook is on board with a "settlement agreement in principle" with users who allege Facebook commercially exploited them without their consent.

United States District Court for the Northern District of California Judge Luch H. Koh revealed in a Case Management Order that a resolution may be imminent in the case of Fraley v. Facebook (Case No. 11-cv-01726-LKH). Last December, Judge Koh refused to dismiss the putative class action suit against Facebook based on its "Sponsored Story" ads [see "TUOL" post 12/22/11].

A Sponsored Story ad is created when a user "likes" a product or service, which is then transmitted to that user's friends. The plaintiffs contend the Sponsored Story ads run afoul of California's right to publicity statute that guards against the unauthorized use of an individual's image, name or voice for a commercial purpose.

Neither side has confirmed the existence of a settlement or disclosed terms.

Calif. Federal Judge Denies Facebook Motion to Dismiss Privacy Suit

Image via WikipediaImage via CrunchBaseImage by Getty Images via @daylifeIn her 38-page decision last week in Fraley v. Facebook (Case No. 5:11-cv-01726), United States District Court for the Northern District of California Judge Lucy H. Koh refused to dismiss a putative class action suit against  Facebook based on the social media leviathan's use of "Sponsored Story" ads.

Although she dismissed an unjust enrichment count against Facebook, Judge Koh found Angel Fraley and her co-plaintiffs had legal standing to proceed with their claims of unfair competition and violation of California's Right of Publicity statute [Calif. Civ. Code sec. 3344]. The plaintiffs contend Facebook, without their consent, appropriated their names, likenesses and photographs for use in Facebook's "Sponsored Story" paid advertisements.

A "Sponsored Story" ad is generated when a Facebook user clicks on the raised thumb Like icon concerning a product or service, which then appears on the user's friends' Facebook page. At issue is whether that turns the user into a spokesperson/endorser of that product or service.

As reported in the Financial Times and elsewhere, Judge Koh kept the plaintiffs' suit afloat by finding "logical" the plaintiffs' argument that they should benefit from the ad revenues flowing to the defendant social network from their unwitting endorsements.  Unequivocally, Facebook's "Sponsored Story" marketing strategy has been successful.

Judge Koh specifically ruled that Facebook cannot benefit from the defense afforded by Section 230(c)(1) of the Communications Decency Act of 1996 that shields Internet Service Providers from liability as publishers. Facebook has also raised a First Amendment argument that the "Sponsored Story" ads are newsworthy, which characterizes the plaintiffs as public figures rendering newsworthy consumer opinions.