Facebook Sponsored Stories Settlement Approved – Fraley v. Facebook

[Post by Venkat Balasubramani]

Fraley v. Facebook, Inc., C 11-1726 RS (N.D. Cal. Aug. 26, 2013) (Digital Media Law Project’s page for the case) (Access a copy of the amended settlement agreement here: [pdf].)

Judge Seeborg initially rejected the proposed settlement of claims over Facebook’s “Sponsored Stories” program for several reasons, including the fact the class was not scheduled to receive any money in payouts. (Previous post here.) The parties went back and reconfigured the settlement, which Judge Seeborg preliminarily approved. After notifying the class about the settlement, Judge Seeborg has now granted final approval of the settlement.

Plaintiffs face uncertainty: The court says that the claims asserted by plaintiffs were far from certain. Plaintiffs “faced a substantial burden in showing they were injured. . . .” Screen Shot 2013-09-06 at 4.28.20 PM.png They also faced a hurdle in showing “lack of consent” by Facebook’s users. Even the claims asserted by the minor-subclass may be preempted by COPPA. Other barriers included that many potential class members did not use their own images or names. Bottom line: even if plaintiffs had prevailed, it would have required a long and uncertain road.

The monetary relief is fair: The court tackles the previous suggestion regarding the total absence of monetary relief and notes that, this time around, the parties agreed that Facebook would pay $20M, a chunk of which would go to class members. To be clear, the court did not require any monetary relief in its initial disapproval of the settlement, but merely found that the parties’ previous agreement which did not include any monetary relief warranted further explanation (one could read this as a veiled suggestion that some monetary relief would be appropriate). The parties eventually decided to set aside a monetary amount, and agreed to pay $10 per class member who filed a claim. They did agree that to the extent there were too many claimants and the per-claimant amount would make distribution impracticable (less then $5 per claimant), then the court could decide whether the amounts would go pro rata to the claimants or entirely to the cy pres recipients.

Surprisingly, so few people filed claims that the parties voluntarily bumped up the payout to $15 per claimant, which would leave enough surplus for fees, costs, expenses, and a cy pres distribution to certain organizations. The court says this is kosher, although the court notes that “adding a direct payment component to the settlement” did not add significantly to the fairness of the settlement overall; more significant was the total amount going to the class and the removal of the provision that Facebook would not object to fees up to a certain amount.

As an afterthought, the court notes that if Facebook’s profits-per-user were used to gauge the appropriateness of the dollar payout, the $15 payout seemed appropriate. The record suggested that:

under plaintiff’s best case scenario, they would be able to show Facebook’s profits attributable to the alleged misappropriation were in the range of $73 million, or approximately $.60 per class member.

The court does note the availability of statutory damages under California’s publicity rights statute ($750 per violation), but plaintiffs faced obvious hurdles recovering this amount. Furthermore, a full payout of this amount to all class members would require $112 billion and would threaten Facebook’s very existence.

Injunctive relief: As part of the settlement, Facebook also agrees to injunctive relief. The court says that the injunctive relief provides “some benefit” to class members:

Facebook has agreed to provide greater disclosure and transparency as to when and how member’s names and profiles are re-published, and to give them additional control over those events. Additional injunctive provisions have been tailored to address the minor-subclass and the parental consent and control concerns related thereto.

The court notes that Facebook could have ended its Sponsored Stories program altogether, or made it opt-in versus “opt-out”, or even paid members for using their likenesses. However, a settlement achieved through arms-length negotiations need not be perfect, and the court’s role is not to ask whether the terms matched some possible ideal but rather whether they are fair and reasonable. The court reiterates that it’s far from certain that plaintiffs would have prevailed in the litigation, and some of the injunctive provisions negotiated here would have been practically difficult to obtain in litigation (as relief that a court would have been unlikely to order).

Miscellaneous issues: The court also says the cy pres payments (to public interest organizations) are an appropriate component of the settlement. Finally, the court says that the broad release is also appropriate since it’s limited to claims arising out of use by Facebook of class member names or likenesses in Sponsored Stories.

The fee award: In a separate order, the court addressed the request for fees. Plaintiffs’ counsel requested $7,500,000 in fees, based on a percentage recovery of the settlement fund. Alternatively they argued this amount was appropriate under the lodestar method, under which they would be paid based on their actual time spent ($5.3 million) increased by a 1.39 multiplier. The court decides to use the “percentage of recovery” approach in awarding fees.

Plaintiffs argued that the injunctive relief should be assigned a value in calculating the recovery. However, the court declines to do so, noting that class members don’t get any additional value or any ability to exploit their likeness elsewhere that would not otherwise exist for them. Thus, while the injunctive relief provisions affect the reasonableness of the settlement, its value is not factored in for purposes of calculating attorneys’ fees. End result: plaintiffs’ counsel will receive 25% of what’s left after deducting costs, administrative expenses and a few other items. While the precise amount will be calculated later, this is a tidy sum, but still a decent haircut from what they requested.

Facebook’s TOS changes: Finally, there’s the issue of Facebook’s proposed changes to its terms of service, which were a part of the “increased disclosure” provisions of the injunctive relief that Facebook and plaintiffs agreed to. Privacy groups objected to Facebook’s latest round of changes, arguing that the proposed changes contravened Facebook’s obligations under the FTC settlement decree Facebook agreed to. (“Privacy Groups Ask F.T.C. to Block Facebook Policy Changes”.) In response, Facebook issued a vague statement that it was delaying implementation of the policy (by a week?).

Here are the redlines reflecting the key changes to the policy: Screen Shot 2013-09-06 at 1.10.35 PM.png

(See Fox Van Allen, Time: “Like It or Not, Facebook Now Wants to Use You in Ads”.)

Facebook also proposed revisions to its privacy policy, but I did not see anything in those revisions that were directly relevant to the Sponsored Stories issue. (Here’s Facebook’s page on proposed changes to its governing documents, which contains links to redlined versions of the proposed changes: “Proposed Updates to Our Governing Documents“.)

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As an initial matter, the fact that Facebook is effecting these changes to its terms of service as part of the settlement should give it some cover against the attack by privacy groups.

Also, it’s unclear that the proposed policy changes are accomplishing much or making significant changes to users’ rights. The previous policy says that Facebook can use your name and profile picture in connection with sponsored or other content. The revised policy says this, but also adds “content and information” to the list. I see this as a protective measure to make sure your actual post is covered in addition to your profile picture or name. Significantly, both the old and new versions say that your content or profile image will only be used consistent with your privacy settings. In other words, if you say that “I saw a movie at Landmark theaters and it was awesome” and have this post set to be accessed only by your friends, this post will only appear in sponsored stories for such friends. It was unclear to me whether the removal of language saying users can utilize “privacy settings” to limit how their name and profile information could be used (and substitution of language saying that if users “select a specific audience” for content or information, Facebook will “respect [this] choice”) changed much. Does this leave room for Facebook to use your profile picture in an ad for a product or brand? Did Facebook effectively remove an opt-out here by revising this language?

[Sidenote: I do not see the inclusion of the word "content" as somehow authorizing Facebook to exploit your content (or photos) outside the Facebook ecosystem. These types of entities want to obtain as broad licenses as possible, but it would be unlikely that they take content wholesale and exploit it in a way that has no connection to Facebook or your account there. (At least, the particular changes at issue do not seem to pave the way for that.)]

On the other hand, this means that Facebook gave up absolutely nothing by way of injunctive relief. Despite being touted as a significant win for the class and trying to argue that the value of this relief should be included in the award for purposes of calculating attorneys’ fees, Facebook is not restricted at all from doing what it previously had been doing. In fact, as best as I can tell, the changes to the terms of service do not change users’ rights in any meaningful way. Most interestingly, as many had predicted, the lawsuit did not result in Facebook discontinuing its Sponsored Stories initiative. Facebook paid out a settlement, made some minor revisions to its terms and disclosures, and is on its merry way. [Added: a Facebook corp. communications rep emailed to point out that Facebook did agree to certain changes that are spelled out in sections 2.1(b) and 2.1(c)( iii) of the settlement agreement. Setting aside the relief with respect to minors, which is spelled out in subsection (c), I still don't see subsection (b) as offering any significant concessions to users. The settlement agreement is linked above, and here [pdf] again for your convenience; readers should take a look and judge for themselves.]

This is not the behavior of someone who even makes any pretenses about having its users’ interest at heart. I would expect more from a company whose push for expansion ostensibly depends on getting online people who are not otherwise connected to the internet, but that’s neither here nor there. Oddly, users don’t seem to care much. Personally, I’m no longer a Facebook user, but to me this reinforces the conventional wisdom to steer far clear of “liking” businesses on Facebook. One wonders what would happen if people took this route en masse. Eric has previously made the point about Facebook over-interpreting a “like” but it does not look like Facebook intends to change course on this any time soon.

A final point is that if increased disclosure is what consumers have gained through the settlement, everyone–Facebook and the plaintiffs’ lawyers–failed miserably in this regard. I do not have a clear idea what’s changed. I’m guessing the average Facebook user who skims over these proposed changes has even less of an idea. Please, Facebook: break it down for us in clear and easy to understand terms!

I imagine this will be appealed to the Ninth Circuit, but I can’t imagine the settlement overall is very susceptible to attack, particularly given that the settlement was changed to include monetary relief to class members. There was some early skirmishing between two separate classes of plaintiffs and an allegation that this lawsuit did not adequately safeguard the rights of minors. There may be some appealable issue buried in there.

[Correction and clarification: I mis-labeled Facebook terms of service (its "Statement of Rights and Responsibilities") and its privacy policy. Also, Facebook did make some concessions that are in sections 2.1( b ) and 2.1( c )( iii) of the Amended Settlement Agreement.]

Previous Posts on Fraley

Facebook “Sponsored Stories” Publicity Rights Lawsuit Survives Motion to Dismiss–Fraley v. Facebook

Judge Seeborg Rejects Sponsored Stories Settlement For Now — Fraley v. Facebook

Previous Posts on Beacon (cert. petition filed)

Split 9th Circuit Panel Approves Facebook Beacon Settlement – Lane v. Facebook

Texas Class Action Aims to Derail Facebook Beacon Settlement

Beacon Class Action Settlement Approved

Stop Saying ‘We Can Amend This Agreement Whenever We Want’!

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