Judge approves Facebook's settlement offer in Beacon case

Facebook will spend $9.5M to set up privacy foundation under the deal

A federal judge has approved a proposed settlement by Facebook in a class-action lawsuit involving its now defunct Beacon behavioral tracking service.

Under the settlement, Facebook will pay $9.5 million to set up a privacy foundation to fund projects promoting the cause of online privacy in return for the lawsuit against it to be dropped.

In approving the settlement, Judge Richard Seeborg of the U.S. District Court for the Northern District of California overturned several objections that had been raised by some members of the class-action in response to the Facebook offer.

In a 12-page ruling, Seeborg called Facebook's proposed settlement "fair, reasonable, adequate and proper and in the best interests of the Settlement Class."

The dispute stems from a lawsuit filed in August 2008 against Facebook by several users of the social networking site. The suit alleged that Facebook and Beacon affiliates such as Blockbuster and Overstock.com had violated several federal privacy laws, including the Electronic Communications Privacy Act and the Video Privacy Protection Act, when they shared data about Facebook users with each other.

In response, Facebook last September extended a settlement offer under which it said it would spend $9.5 million to set up a privacy foundation focused on online privacy issues. As part of its settlement offer, Facebook said it would shut down the Beacon service entirely.

Privacy advocates welcomed the company's decision to shutter Beacon. But earlier this year, consumer advocacy group Public Citizen, of Washington D.C, and some Facebook users asked the court to reject the offer.

In their complaint, the groups said that the proposed settlement did nothing to compensate victims whose privacy may have been compromised by Beacon. Other than formally disbanding a program that Facebook had voluntarily already discontinued, the settlement offered little else the groups complained.

They also argued that the settlement would give Facebook a direct role in drafting the mission and bylaws of the proposed foundation and in appointing board members. The complaint noted that one of the three initial directors of the foundation would in fact be a Facebook employee and chief lobbyist.

Facebook, meanwhile, claimed that the opposition to its settlement offer stemmed from a complete lack of understanding of the proposal. The company insisted that the proposed privacy foundation would be an independent entity run by three well known and respected privacy advocates.

In his ruling, Judge Seeborg expressed similar sentiments. Those objecting to the proposed settlement had not shown "any substantial reason to doubt the independence of two of the three directors," he wrote. It is reasonable to expect that the Facebook director would be opposed to any actions taken by the privacy foundation that would directly harm Facebook, the judge said.

However, that does not mean that the foundation will end up being a "mere publicity tool for Facebook," or be under its direct control, he said. He also rejected the objection that class members were due any monetary compensation. The chances of class members receiving any compensation if the case was to go to court are "speculative at best" given the circumstances of the case, he wrote.

A Facebook spokesman expressed satisfaction over the ruling. "We're pleased that Judge Seeborg has approved the settlement after carefully considering all opinions," he said in a statement. It added that Facebook will be releasing additional details on the foundation over the next several months.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at @jaivijayan or subscribe to Jaikumar's RSS feed . His e-mail address is jvijayan@computerworld.com.

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