Monday, August 20, 2012

Facebook Inc (NASDAQ:FB)’s Settlement in Privacy Lawsuit Rejected

Facebook Inc(NASDAQ:FB) efforts to increase revenues received a setback on Saturday when a federal judge rejected the company's offer to settle in a privacy lawsuit. The lawsuit charges the company with violating California law by publicising users' `likes' of certain advertisers without their permission and giving them the choice to opt out or adequately paying them.
The case related to Facebook's `Sponsored Stories' feature where the platform's users endorse brands, often without their knowledge or consent. The advertisers then use these likes (along their name and pictures) to promote their brands to others on the network. The advertisers pay Facebook for this service.

For Facebook it is an invaluable feature as it enables advertisers to easily reach out to hundreds of thousands of prospective customers at virtually very little expense. The revenues that it garners out of this are vital for the company that has been struggling with sustaining its growth.

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The case registered against the social networking giant said that it did not inform users properly about how their `likes' would be used and how it would translate into profits for the company. A settlement had been reached last year between Facebook and the plaintiffs.

As part of the settlement, Facebook had agreed that it would inform it users about the sponsored stories limit the scope of their usage and allow minors under the age of 18 to opt out of the feature. The company also said it would pay $10milion to all the concerned advocacy groups and privacy rights groups and another $10 million to cover their legal fees.

However Judge Richard G. Seeborg of the United States District Court in San Francisco rejected the settlement and asked both the parties to justify how they had arrived at the settlement figure.

The judge wanted clarification whether the users, whose photographs and names have already been used, would be covered under the settlement and whether they would receive any recompense.

Facebook's own contention was that the settlement was fair, reasonable and adequate.

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