Facebook Beacon Settlement Upheld by Ninth Circuit

In 2007, Facebook launched a new feature called Beacon. The purpose of Beacon was to allow third-party websites to send data to Facebook to allow for targeted advertising and for users to share activities conducted on third-party sites with their Facebook friends. There were over 40 third-party sites included in this program, ranging from Overstock.com to various news and travel websites. Facebook chose to make this an “opt-out” system, purportedly to make it “lightweight” and improve the ability of users to easily share their activities. However, as acknowledged by head honcho Mark Zuckerberg, this feature had “a lot of mistakes” and Facebook “made even more [mistakes] with how [they] handled them.” These “mistakes” included the complexity of the opt-out procedure, which required knowledge of Facebook’s privacy controls as well those of its third-party partners.

Sean Lane was one Facebook user who was unable to navigate the opt-out procedure of Beacon. He bought a surprise gift for his wife on Overstock.com­—a diamond ring. The surprise did not last for long, however, as this purchase was soon broadcast via Beacon to people in his network on Facebook, including his wife.  Sean eventually became the lead plaintiff in a 2008 federal class action lawsuit filed against Facebook and some of its third-party affiliates, in which he alleged violations of ECPA, the Computer Fraud and Abuse Act, the Video Privacy Protection Act, and California state privacy law for this interception and distribution of private information to users’ Facebook friends without their consent.

Facing a class of 3.6 million wronged users, Facebook decided to settle the case in 2009, with a federal district court in California approving the settlement in February 2010. Among the settlement provisions is the creation of $9.5m settlement fund, which would in part pay for the formation of a privacy foundation, now known as the Digital Trust Foundation (DTF). The DTF would be run by, inter alia, a former Facebook director for public policy. None of the settlement money will go to the users; $2.3m pays for attorneys’ fees and the rest will bankroll the DTF. The Beacon service would also be removed from Facebook. Some plaintiffs objected to the settlement, going so far as to call the agreement “virtually worthless” to the individuals in the class. In objecting to the settlement, these plaintiffs took issue with the fact that nearly 1/3 of the $9.5m settlement fund would be paid out to the class action attorneys with no compensation for the users. They were also unsatisfied with the DTF’s connection to Facebook and classified the shutdown of the Beacon service as a “token gesture.”

In an order issued yesterday, the Ninth Circuit has declined en banc hearing on the settlement, effectively upholding the agreement.  There were six dissenters among the 28 judges on the circuit court, who mainly complained that the DTF created by the settlement to teach users how to be more private in their activities would do nothing to curb Facebook action in abrogating users’ privacy.

I think that Facebook comes out on top here. While $9.5m isn’t exactly a drop in the bucket, it’s not an exorbitant amount for a company of their stature. Using the money to create a privacy foundation addressed to Facebook users is perhaps a savvy PR maneuver.  On the user side, it may be better to see the settlement money paid into a foundation that takes strides toward securing privacy than for each user to receive their roughly $2 in payment from the settlement. However, given the limited role of the DTF and no other effect on Facebook beside a small loss of capital, the settlement may ultimately do little to quell users’ fears that the social network may attempt to institute a similar privacy invasion in the future.