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US judge slaps down Facebook settlement in 'Sponsored Stories' privacy case

A US federal judge has rejected a proposed settlement designed to address concerns that Facebook’s ‘Sponsored Stories’ ad feature violated users’ privacy rights.

Citing “serious concerns” about the terms of the deal, which awards attorneys $10 million (£6.4 million) and allocates a further $10 million for charity, Judge Richard Seeborg said Facebook and the plaintiffs’ attorneys could adjust their agreement. He questioned the settlement’s lack of award for members and asked for more information about how the deal was reached.

"We continue to believe the settlement is fair, reasonable, and adequate," Facebook said in a statement in response to the judge’s order. "We appreciate the court's guidance and look forward to addressing the questions raised in the order."

Facebook uses the Sponsored Stories feature to turn people’s ‘Likes’ on the site into advertisements, displaying them to users’ friends to generate more ad revenue - a Sponsored Stories ad is estimated to be two-to-three times more valuable than a conventional ad because it translates as a recommendation from a friend. But members’ profiles and personal information were used without permission, amounting to egregious privacy violations that prompted the lawsuit. The suit was filed by five Facebook users, but some 100 million more were potentially eligible for a class action case.

The settlement includes a provision that would allow users to opt out, limiting how Facebook uses their profiles in its Sponsored Stories ad program. According to the deal, the social networking site would be required to ensure that its members “are apprised of the existence and mechanics of Sponsored Stories ads, and they will then also be capable of taking steps to limit their appearance in those ads.”

In his order, Judge Seeborg intimated that users were getting the short end of the stick while lawyers were benefiting unfairly. While the company was expected to lose $100 million (£640 million) in advertising revenue through the case, the settlement offered a mere $20 million (£12.7 million) payout, a figure that Judge Seeborg questioned.

“[T]here are serious concerns with the provision of the settlement agreement permitting plaintiffs to apply for up to $10 million in attorney fees without objection by Facebook,” he wrote.

“The fact that the parties negotiated that ‘clear sailing’ provision separately from the [charity] payment does not wholly eliminate the concern that class counsel may ‘have bargained away something of value to the class’,” he said.