Beacon Class Action Settlement Approved — Lane v. Facebook

[Post by Venkat]

Lane v. Facebook (Case No. 09-3845 RS; March 17, 2010) [scribd link]

Judge Seeborg yesterday issued an order approving the class settlement in Lane v. Facebook, the class action lawsuit arising out of Facebook’s Beacon program.

Background: Shortly after the uproar around Facebook’s launch of its Beacon program, a group of plaintiffs filed a class action lawsuit in the Northern District of California. Prior to this lawsuit, another group of plaintiffs sued Blockbuster in Texas, based on Blockbuster’s participation in the Beacon program. Both plaintiffs asserted, among other claims, violations of the Video Privacy Protection Act, a statute which protects against disclosure of video rental records.

In Texas, Blockbuster argued that the claims should be subject to arbitration based on a terms of service. The court rejected Blockbuster’s arguments on the basis that the terms of use were illusory because they contained language saying that they could freely be amended at any time. (Here are posts by Professor Goldman and Tom O’Toole on this potentially far-reaching ruling.) Blockbuster appealed this ruling.

Meanwhile, the California plaintiffs (represented by Scott Kamber) announced a settlement of their claims. The proposed settlement did not provide for monetary damages to the plaintiffs; Facebook agreed to set aside a chunk of money to fund a “privacy foundation,” which would be staffed by nominees of counsel for the parties. (Here’s a summary of the proposed settlement terms at CircleID.)

Once the Texas plaintiffs found out about the settlement, they moved to intervene in the California lawsuit. They argued that the two class actions should have been consolidated and that the California plaintiffs could not release claims on behalf of the class against Blockbuster, since those claims were first asserted by the Texas plaintiffs in the Blockbuster class action. Judge Seeborg denied the motion to intervene, a ruling which the Blockbuster plaintiffs appealed.

The parties engaged in a round of wrangling in the Northern District of California, and behind the scenes. Ultimately, Blockbuster settled with the Blockbuster (Harris) plaintiffs by agreeing to pay $50,000. More importantly, counsel for the two classes probably came to some sort of agreement regarding fee sharing. Counsel for the Blockbuster plaintiffs then withdrew their objections to the proposed settlement pending in front of Judge Seeborg. This left a few objections raised by individuals and public interest organizations. Judge Seeborg rejected these objections and approved the settlement.

The Court’s Disposal of The Objections:

Form of Notice: One interesting objection was raised by Shan Huangfu. He argued that notice of the settlement was sent via email, was caught in his spam filter and therefore inadequate. (Here’s an article by Wendy Davis flagging this objection.) I didn’t pick up on this at first, but interestingly, the parties wanted to use email notice in lieu of notice through Facebook accounts, and Judge Seeborg did not agree with this. Ultimately, it looks like Facebook sent notice via email and through the potential class member’s Facebook account, but did not send any paper notice. I wonder if people who cancelled their Facebook account in reaction to Beacon were more likely to fall through the cracks?

Whether The Privacy Foundation Will be Beholden to Facebook: One of the biggest objections to the proposed settlement was that the foundation created as a result of the settlement would be beholden to Facebook and wouldn’t provide any public benefit. Judge Seeborg found that there had been “no persuasive showing that the Foundation will be a mere publicity tool for Facebook, or in any meaningful sense under Facebook’s direct control.” The foundation will initially staffed by Chris Hoofnagle, Larry Magid, and Tim Sparapani (Facebook’s Director of Public Policy and a formerly Senior Legislative Counsel to the ACLU in Northern California). (Interestingly, Sparapani shares a fair amount of personal information on his publicly accessible Facebook profile.)

The Fact That No Monetary Relief Was Awarded to Class Members: Another significant objection was that the class members will not receive any compensation under the settlement (except for the named plaintiff who would receive $10,000, two named representatives would receive $5,000 each, and the remaining named representatives would receive $1,000 each). Judge Seeborg dismissed this objection on the basis that the damages available (principally, the statutory damages under the Video Privacy Protection Act) would be “speculative at best.” Because of the speculative nature of the statutory damages, and the risks inherent in litigation, the settlement as structured could be viewed as reasonable.

Observations:

1. The appeal in Harris v. Blockbuster (the Texas action) has been dismissed by the parties. However, they haven’t moved to vacate the trial court’s ruling so it looks like it will stay on the books. (EPIC filed an amicus brief in favor of the Harris plaintiffs: [pdf]. EPIC’s page on Harris v. Blockbuster is worth checking out.)

2. There were approximately 3.6 million potential class members. 100 opted out, and 4 objected. These numbers understandably swayed Judge Seeborg. I’m surprised no one mounted a vigorous “opt out of the Beacon settlement” social media campaign. This would have probably been the most effective method to derail the settlement.

3. This plaintiffs in the California action were left in the awkward position of arguing that the lawsuit that they brought would not support the award of significant damages. In fact, Scott Kamber’s declaration [scribd link] argues that it would be tough to hold Facebook liable under the Video Privacy Protection Act, among other reasons because Facebook does not fall under the statute’s definition of a “video tape service provider”.

4. The Harris plaintiffs were in this position as well. Additionally, the Harris plaintiffs settled separately with Blockbuster, and Blockbuster agreed to pay “Plaintiffs $22,500 and also . . . pay Plaintiffs’ counsel $27,500 [in fees].” (Access the Blockbuster settlement agreement on Scribd here.) From the settlement agreement, it appears that the named plaintiffs will receive settlement payments but the remaining members of the class receive nothing. In fact, the court hearing the Blockbuster lawsuit did not approve the settlement. I suppose you could say that the Blockbuster plaintiffs were receiving these amounts for their efforts expended in representing the class, but there was no class award and no class to represent. Shouldn’t the remaining Harris plaintiffs receive some compensation? Another factor here is Blockbuster’s precarious financial condition.

5. Judge Seeborg deferred ruling on counsel’s request for fees, asking for some additional evidence on time spent by counsel. The request for fees states that the Lane class counsel incurred $1.1mm in fees and the Harris class counsel incurred $820,000. After adjustments, between the two, they seek approximately $2.8mm in fees.

6. It’s interesting that a piece of legislation passed in the wake of then-Judge Bork’s Supreme Court confirmation hearing ended up being influential in this context. I doubt when the legislation was passed, Congress envisioned that the statute would be central to a significant dispute around online advertising and would result in a settlement of this scale. There’s no counterpart to the Video Privacy Protection Act for magazines, books or newspapers. Just videos.

7. The Video Privacy Protection Act reared its head in another privacy dispute recently. Netflix just settled with the FTC and agreed to discontinue the sequel to its recommendation engine contest. (Forbes/The Firewall) Professor Ohm flagged the issue in September 2009 post and urged Netflix to reconsider its decision to launch the second contest. While the settlement between the FTC and Netflix wasn’t expressly based on the Video Privacy Protection Act, Scott Kamber also sued Netflix under this statute. Netflix announced on its blog that this lawsuit has been settled, but the terms have not been made public.

8. I guess someone can appeal. Public Citizen objected, maybe they will?

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(h/t Wired’s Threat Level)

Wendy Davis at MediaPost has been following this lawsuit closely. Here is a link to her article on Judge Seeborg’s decision.

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