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

September 21, 2012 · by Venkat Balasubramani · in E-Commerce, Privacy/Security, Publicity/Privacy Rights

Lane v. Facebook, 10-16380 (9th Cir. Sept. 20, 2012)

Facebook’s Beacon initiative has generated more than a few blog posts.

Judge Seeborg approved the class settlement, over the objections of several objectors, including Ginger McCall. The objectors appealed to the Ninth Circuit saying that the settlement should not have been approved. The Ninth Circuit says that approval of the settlement was not an abuse of discretion.

The terms of the settlement were that Facebook would pay $9.5M for a full release of the claims. $3 million of this amount would go to fees and costs of administration. The remaining $6.5 million would go to the “Digital Trust Foundation,” an organization run by a three-member board of directors (Larry Magid, Chris Hoofnagle, and Timothy Sparapani, Facebook’s director of public policy). The organization would also have a legal advisory board which would consist consist of class counsel and counsel for Facebook. No monetary relief would be awarded to the class members, although they could opt-out. Facebook would agree to terminate Beacon, but nothing in the agreement stopped it from re-launching a similar initiative. (Hello, Sponsored Stories 2.0!)

The majority says that appellate review is limited to determining whether there has been a “clear abuse of discretion.” It says that cy pres remedies (where there is the “next best” distribution of the settlement amount – to someone other than the class members) are allowed, and nothing in the structure of DTF causes the cy pres remedy to be improper. As long as the remedy accounts “for the nature of the . . . lawsuit, the objectives of the underlying statutes, and the interests of the silent class members,” that’s all that is necessary.

As to the second objection that focused on the value of the settlement and the district court’s failure to consider the availability of statutory damages under the VPPA, the court relies on the familiar argument that the claims, being privacy claims, are uncertain. There aren’t a long line of cases where plaintiffs have been awarded damages under the Video Privacy Protection Act, and it’s unclear that the claims could be easily brought against Facebook, rather than Blockbuster, an entity that is in a financial quagmire. [There has been a bunch of VPPA activity involving Netflix, Hulu, and Redbox, but no clear wins, and certainly no blockbuster damage awards, for plaintiffs.]

A dissenting Judge Klienfeld tees off on Facebook and on the settlement (and to some extent the class action system in general). He has a long list of problems ranging from expansion of the class to the scope of injunctive relief, to the combination of a “clear sailing” agreement as to fees coupled with no monetary relief to class members. It’s tough to do it justice by recapping it in a blog post, so I would urge readers to check it out for themselves. Here’s a key graf that summarizes his qualms:

In this case, the [class action] process has failed. The attorneys for the class have obtained a judgment for millions of dollars in fees. The defendant, Facebook, has obtained a judgment that bars claims by millions of people victimized by its conduct. So have the other companies involved in Beacon. The victims, on the other hand, have obtained nothing. Under the settlement, Facebook even preserved the right to do the same thing in the future.

Meh. This is an underwhelming result for how long it took for the court to issue its opinion.

The 9th Circuit issued recent decisions on fees (Dennis v. Kellog) and on cy pres settlements (Nachshin v. AOL) that made me think this settlement wouldn’t get its stamp of approval, so perhaps this is a surprising ruling. I wonder whether the objectors will seek re-hearing and whether Judge Kleinfield’s dissent will interest enough interest from other 9th Circuit judges to make that happen. (Judge Seeborg tentatively rejected the proposed settlement in the Sponsored Stories class action: “Judge Seeborg Rejects Sponsored Stories Settlement For Now — Fraley v. Facebook.” This ruling likely paves the way for everyone to clean up the issues he identified in his ruling, and get it approved.)

To me, what makes the settlement problematic is the toothless injunctive relief negotiated on behalf of the class. As Judge Kleinfield points out, as long as it’s called something else, there’s nothing to stop Facebook from launching Beacon 2.0. Even assuming that cy pres is appropriate and it would be impractical to distribute small amounts to class members, I don’t get the sense that this lawsuit will act as a meaningful check on Facebook’s privacy practices, either as to programs such as Beacon, or as a general matter. It’s silly to assume that a non-profit that’s funded by Facebook could achieve this result when third party organizations haven’t been able to do much. (On the other hand, maybe people don’t really care about privacy on Facebook. Although there were some quibbles about the adequacy of notice, of the 3,663,651 class members identified by Facebook, a measly 108 opted out, and 4 submitted written objections.)

See also: New Essay: The Irony of Privacy Class Action Lawsuits (Eric’s essay)

Other coverage:

Facebook’s $9.5 Million ‘Beacon’ Settlement Approved (David Kravets/Wired)

Facebook Beacon settlement gets OK (San Francisco Chronicle) (with comments from Greg Beck)

Facebook’s Beacon Settlement Upheld By 9th Circuit (Wendy Davis/Media Post)

Beacon Class Action Settlement Approved

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

Posts on Fraley v. Facebook:

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

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