Ninth Circuit Resolves Two of the Facebook Sponsored Stories Lawsuits

February 7, 2016 · by Venkat Balasubramani · in E-Commerce, Licensing/Contracts, Publicity/Privacy Rights

The litigation over Facebook’s sponsored stories occurred what seems like eons ago. Recently, the last of it wrapped up (although the latest ruling is the subject of a petition for rehearing en banc). It generated lots of blog fodder, and some interesting rulings, but was ultimately swatted away by Facebook.

CMD v. Facebook: A more interesting aspect of the dispute involved claims brought by minors and whether they would disaffirm contracts under California’s statute providing for minor disaffirmance in certain situations. A district court ruled that the contract in question—Facebook’s terms of service—did not fit into one of those which gave rise to statutory right of disaffirmance. It did not:

(a) give a delegation of power
(b) make a contract relating to real property …
(c) make a contract relating to personal property not in the immediate possession or control of the minor

the court also said the plaintiffs did not disaffirm because they continued to use Facebook. The Ninth Circuit affirms saying there was no delegation of power, because Facebook did not use plaintiffs’ names and likeness for the minors’ benefit. Similarly, subsection (c) did not apply because it was meant to prevent minors from contracting away future rights. The court also agreed that plaintiffs did not effectively disaffirm.

Fraley v. Facebook: Meanwhile, the lawsuit brought by non-minors was settled by Facebook. The minors intervened in this lawsuit to protest the terms of the settlement. Objectors chimed in as well.

The settlement provided for payment of a monetary amount to class members ($15, increased from $10). If not enough class members made claims, the remainder was donated via cy pres. The Ninth Circuit approved the settlement, saying that the $15 award for class members “was reasonable in light of the minimal (if any) harm suffered by plaintiffs.” [Ouch!] Additionally, the court agreed that COPPA’s possible preemption of section 3344 also bore on the strength of the claims. The cy pres settlement was also found to be proper, given the nexus between the organizational recipients and the causes of action. The court also rejected the argument that the settlement was improper because it authorized continued violation of the law (of minors’ personality rights).

A dissenting Judge Bea agreed that while the settlement should be approved overall, the use of cy pres distribution was improper. In his view, the district court could have just increased the per-claimant payout to minimize the cy pres amount. (The court says “over 600,000 class members submitted claims”.)

Judge Bea also thought that one of the objectors, whose objection potentially resulted in a reduction of fee award for class counsel by $300,000, should have been awarded additional attorneys’ fees.

The most interesting (almost shocking) aspect of the court’s rulings was that they were both memorandum opinions. I’m not sure what precisely the court’s standards are for when something gets memorandum treatment, but both of these involved novel and interesting issues, and indeed one ruling drew a dissent. Applicability of the minor contracting statute to this scenario ranked as one of the top developments in Internet law in the year the district court issued its opinion.

Credit to Facebook for navigating through this particular quagmire of litigation with a minimal payout, and precedent that’s not entirely unfavorable to it. The lawsuits over its Beacon program followed a similar trajectory.

Case citations:

Fraley v. Facebook, No. 13-16819 (9th Cir. Jan. 06, 2016)

CMD v. Facebook, No. 14-15603 (9th Cir. Oct. 30, 3015)

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