The San Francisco Federal judge overseeing the Facebook "Sponsored Stories" case sent the parties back to the drawing board when they presented their proposed settlement to the court last week, according to Wired. He wasn't necessarily rejecting the settlement, but questioned why the attorneys and a group of pro-privacy organizations were EACH getting $10 million, while the allegedly injured Plaintiffs were only getting a measly $37 thousand.
Facebook "Likes" Became Unpaid Endorsements
This is the latest in a line of legal problems for one of the most highly valuated companies in the world.
The Plaintiffs, representing a much larger class of Facebook users, claim that Facebook used them as unpaid spokespeople in advertisements directed at their friends after they simply "Liked" a product or service. Facebook, and the advertisers, ostensibly made money off these unauthorized endorsements and did not compensate the unwitting spokespeople.
Judge Rejects Settlement
The judge questioned two aspects of the settlement. For one, he wanted to know why the attorneys were getting as much as the entire group of pro-privacy charities.
The settlement also requires Facebook to let users opt out of Sponsored Stories. Facebook apparently claimed that might cost it $100 million in advertising revenue. So, the judge wants to know why Facebook is only paying out about $20 million, essentially keeping the lion's share of the profits it already made.
The judge is also concerned the settlement doesn't take into account the damages to more than 100 million Facebook users who already endorsed products and services, without their consent or any compensation. Even if their individual damages are small, collectively they might add up to far more than this settlement.
One of Facebook's attorneys apparently thinks it's a good deal, that was agreed to after weighing the risks of litigation and not because of the merits. Wired quotes him as saying "I’m not going to pay $100 million for a case I should win."
The case is Fraley v. Facebook Inc., 11-cv-01726. U.S. District Court, Northern District of California (San Jose)