Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=214729
Story Retrieval Date: 10/25/2014 10:40:11 PM CST

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Facebook pays $20 million to settle lawsuit over user content

by Amelia Kaufman
Jan 30, 2013


AMELIA FACEBOOK

Amelia Kaufman/MEDILL

The e-mail notice Facebook users received over the weekend notifying them of the $20 million settlement.

The social media giant has agreed to pay $20 million to settle a lawsuit alleging the social media giant misused content posted by users to sell. But the payout is limited to $10 per person and if too many people make claims, CEO Mark Zuckerberg will be “sharing” the money with a nonprofit of his choosing.

More than half of the settlement already has been spoken for because the class-action lawyers are entitled to a proposed $7.6 million fee.

Anyone who has had their likeness displayed in one of Facebook’s so-called sponsored stories can claim a portion of the pool--but only if they meet the requirements. Claimants have to send the company their bank routing number to claim a possible 0.00000000015 percent of the company’s net worth to compensate them for having their content borrowed. Users who potentially qualify received an email notification last week.

Sponsored stories are a type of Facebook advertisement generated when a user interacts with a Facebook service such as widget, application or game. The ads, which appear in a user’s sidebar, include a photo of a Facebook user and an endorsement such as “John likes Amazon.com.”

Jack Hughes, a Chicago Facebook user, isn’t concerned about what Facebook has done with his content, if anything. He also says he would not file such a claim because, “It’s not enough money and it’s a waste of time.”

On its website, Facebook states that users “cannot opt out of being featured in sponsored stories.” As an alternative security measure, users can visit their “activity log” to control who can see their activity – including the ads. Facebook also says that sponsored stories can only be viewed by those specified in a user’s privacy settings and won’t be circulated throughout the whole site.

The settlement has only been preliminarily approved by U.S. District Judge Richard Seeborg and will be presented during a fairness hearing June 28. If the court determines the settlement is fair, he will approve it.

The class action lawsuit, which was brought by Facebook user Angel Fraley, claims that Facebook “unlawfully” obtained users profile content without consent to sell products or services through the sponsored stories ads.

In agreeing to settle the case before it got to court, Facebook has not admitted any guilt in the matter.

Colleen Nash, a Chicago resident and avid social media user, did not get a notification. If she had, she would have filed a claim. But she says the $10 limit is laughable. “[Facebook] should give more but they aren’t going to – its Facebook.”

Facebook is set to release its fourth-quarter earnings Wednesday after the market closes. Analyst Ralph Schackart of William Blair & Co. is estimating that advertising revenue will total $1.24 billion, which would be a 32 percent increase from the same period last year. “Expectations are high,” Schackart said in a research note. “We believe Facebook needs to post another strong quarter at least to meet expectations.”

Michael Pachter of Wedbush Securities Inc. isn’t worried that Facebook’s shares will suffer because of the settlement. The lawsuit was priced in when the news initially broke last year.

“No one really cares about a $20-million lawsuit when the company is worth $66.88 billion,” Pachter said in an interview. “It’s the disruption to the user experience that will cause a problem. It is a balance between advertising and monetizing user base. If users don’t use Facebook’s product, Facebook no longer has a product.”