Facebook Ads Settlement Challenged by Consumer Group

Facebook Inc. (FB)’s $20 million settlement of a consumer lawsuit over the use of members’ information in advertisements violates state laws protecting minors, a watchdog group said.

Public Citizen today asked a federal appeals court in San Francisco to overturn a judge’s approval of the accord, which provides about $15 each to some Facebook members and requires the world’s largest social-networking company to give users more information about, and control over, how their names and photos are used in ads.

The settlement doesn’t require Facebook to get express permission from parents of people under 18 before their names or photos are used in ads, as mandated by laws in California, New York and at least five other states, Public Citizen said in today’s court filing.

Rather, parents who are Facebook users and linked to their child’s account will be able to block the child’s information from being used in ads. Minors who tell Menlo Park, California-based Facebook that their parents aren’t users won’t have their photos or names used in ads under the accord.

“None of these provisions requires parental consent before Facebook uses a minor’s likeness in advertisements,” Scott Michelman, a Public Citizen attorney, said in the court filing. “The purported safeguards are no safeguards at all.”

‘Sponsored Stories’

Facebook was accused in a 2011 lawsuit of appropriating the names, photographs and identities of users to advertise products without their consent. The “Sponsored Stories” program created ads displaying names or photos of users who clicked a “like” button next to content on Facebook, even though they hadn’t given permission, according to the complaint.

Internet companies such as Facebook, which has more than 1 billion users, are facing rising concerns over the safety and privacy of children who go online. Under criticism by consumer groups, Facebook in November said it would drop proposed policy language that said minors would verify that a parent or guardian consented to their data being used in promotions.

Facebook, which reported 2013 net income of $1.5 billion, agreed to make $20 million available under the settlement. U.S. District Judge Richard Seeborg in San Francisco approved the accord in August, saying that while the payment is small, the deal was fair given the obstacles users faced in trying to show they were harmed by the practice.

Federal Law

Seeborg also found that federal Internet privacy law, which requires parental consent to use personal information of children under age 13, trumps state laws that mandate consent for minors under 18 before that information can be used in ads.

“The same arguments on state law were raised and rejected by the court last year,” Jodi Seth, a Facebook spokeswoman, said in an e-mail. “The court-approved settlement provides substantial benefits to everyone on Facebook, including teens and their parents.”

Money not claimed by users will go to plaintiffs’ attorneys and 13 nonprofit groups. Campaign for a Commercial-Free Childhood, a group that was to receive $290,000 of the Facebook settlement money, said today it opposes the accord and would turn down the funds, which represented almost all of its 2012-2013 budget.

“Unfortunately, its purported privacy protections are largely illusory and it will undermine future efforts to protect minors on Facebook,” CCFC’s director, Dr. Susan Linn, said on the group’s website.

About 123 million Facebook members were eligible to share in the settlement, including almost 20 million minors. Only 614,000 users filed claims, according to court filings.

The appeals court case is Schachter v. Facebook, 13-16918, U.S.Court of Appeals for the Ninth Circuit (San Francisco). The originial case is Fraley v. Facebook Inc., 11-cv-01726, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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