Why am I part of a Facebook class action in the first place?

The social network got sued for using you as a product pitchmen for “Sponsored Stories” without your permission. For instance, if I “Liked” Justin Bieber’s page, my Facebook friends might have seen a big ad saying “Jeff likes Beeb’s new eyeliner.” Today, Facebook can still do that because it changed its privacy terms — it’s the earlier ads it’s on the hook for.

How do I collect?

Go to the settlement page and fill out the claim form by May 2.

So how much will I get?

Facebook is paying $20 million all-in to make this go away. Under a revised deal (the judge rejected the first one), Facebook users are eligible for up to $10 each — so long as there’s enough money to go around.

Oh, and that $20 million isn’t just for Facebook users. The lawyers are asking for nearly $8 million. Then there are people like the “escrow agent” and the “settlement administrator” who get a cut too. If the judge okays all this, it will be more like $10 to $12 million to go around.

To look at it another way, if there is $12 million left after the lawyers, there is enough money left to pay 1.2 million Facebook users.

Well, what if more than 1.2 million people make a claim?

You have to share. If 2 million Facebook users sign up, everyone would get about $6. If 2.4 million sign-up, it’s $5. If more people than that sign up, everyone gets nothing.

So what are my chances to get some money?

There are about 165 million Facebook users in America. If even 2 percent decide to make a claim, you’re likely out of luck.

Well, that doesn’t seem fair. Who gets the money then?

The class action says it’s not very efficient to cut $4.99 checks to everyone. So, if too many people are eligible, they’re just going to give the money to your friends at Harvard, Stanford, Berkeley and the EFF instead. These groups will then use your money to advocate for privacy.

Well, damn it. It was my privacy that was violated — don’t I even get to be involved?

That’s a good question. This keeps happening again and again — Google, Facebook, etc. violate everyone’s privacy and the money from the resulting lawsuit goes to lawyers and a bit of it goes to “charity.”

To be fair, this isn’t as crazy as it sounds. Many of the privacy advocates do good work and the class action lawyers, even if they’re in it for themselves, do keep the tech companies on their toes.

The bigger problem here is that these legal deals don’t do a good job of involving the people who are affected. Nor do they produce solutions such as a “pay-for-privacy” option. Would you pay $5 a month for an ad-free, non-creepy version of Facebook? I might. But the class action settlement doesn’t allow us to raise these sort of options or to ask Facebook directly about what they’re doing.

If I don’t get any money, does any good come out of this lawsuit?

A bit. The settlement claims it will force Facebook to create a tool to see which products you’re endorsing and to remove your endorsements. But we’ll have to see if this tool will be easy to use in practice.

Consumer Watchdog is jumping up and down because the settlement, which punishes Google for hacking shenanigans, doesn’t require the company to admit wrongdoing.

“Google executives want to buy their way out of trouble with what for them is pocket change, and then deny doing anything wrong,” said Consumer Watchdog’s John M. Simpson, adding the deal “undercuts the regulatory process.”

Baloney. Simpson and friends appear to be seizing on recent comments by FTC commissioner J. Thomas Rosch to stir the pot. Rosch earlier this month dissented in a Facebook privacy case, saying he preferred that companies use the phrase “neither admits nor denies.”

Well, wait a minute — shouldn’t these companies have to fess up and own their wrongdoing? In a perfect world, yes. But, in reality, the current system works because it shames the companies and forces them to pay sizable fines. Companies choose to play this game because it provides them with a partial shield from civil lawsuits.

A source from a big tech company, speaking on the condition of anonymity, told me that firms would fight bitterly if they had to admit liability in the FTC settlements. This would result in many more court cases and higher risk and cost for the government. The current “name, shame and pay” tactic used by the FTC and other agencies isn’t pretty but it’s largely effective.

Which brings us back to Consumer Watchdog. Critics say the company is a playground for trial lawyers.  And, unlike the Electronic Frontier Foundation and other groups that post reports, Consumer Watchdog’s funding and operations are a black hole.

Consumer Watchdog’s latest hysterics smell all the more in light of its recent anti-Google crusade (remember that ad in Times Square?) and the presence of the indefatigable Gary Reback, a former Microsoft lawyer who is currently representing a shopping site that is suing Google.

All of this doesn’t mean Google deserves less scrutiny. The company has many, many sins to atone for and there are few signs it plans to get privacy religion anytime soon. Courts and activist groups also deserve blame for creating privacy settlements that pay lawyers but do little to involve the consumers whose rights have been violated.

The privacy scene is a mess but Consumer Watchdog’s decision to demagogue the regulatory process won’t help.

(Image courtesy of Shutterstock 3445128471)

In an order this week, Judge Denny Chin granted permission for two groups to intervene in the case: one is the Digital Humanities Scholars and Law Professors; the other is a group representing the Electronic Frontier Foundation, the American Library Association, the Association of College and Research Libraries and the Association of Research Libraries.

The Authors Guild had opposed giving the groups permission to file amicus curiae (“friend of the court”) briefs. Such documents typically provide extra legal ammunition to one side or the other.

The academic community and the EFF are weighing in because they want to use the Google case as a means of expanding “fair use,” a legal doctrine that provides an exception to copyright in the case of research, reporting and certain other activities.

Chin’s order (below) also set out a timetable that allows the Authors Guild to reply to the new filings by September 17. It also instructs Google and the Authors Guild by the same date to file final papers in support of summary judgment — a procedure that could let Chin decide the case without a trial. The judge said the parties are to make their arguments in court on October 9.

Chin’s schedule is something of a surprise given that the US 2nd Circuit announced this week that it would hear an appeal of the same case. I had written earlier that Chin was unlikely to move the case forward given that whatever decision the appeals court makes must inform his own rulings.

UPDATE: James Grimmelmann has just reported that filings and oral arguments have been moved to December.

The Authors Guild is asking Google to pay $750 for book with a registered copyright that it scanned without permission. Google has scanned more than 20 million worldwide but the amount covered by the Authors Guild suit are only a fraction of that.

The new order was first reported by Publishers Weekly. The document is below:

Google Books Amici Grant

If you missed it, Facebook says it will pay $10 million to compensate users who were turned into product pitchmen as a result of “Sponsored Stories” ads that treat ‘Likes’ as endorsements (see how one user unwittingly endorsed a jumbo tub of lubricant). None of this money, however, will go to Facebook users.

Instead, the payout will perpetuate a symbiotic relationship between tech companies and their critics that works like this:

Step 1) Facebook/Google/etc. break a privacy law. Step 2) Critics blow whistle, lawyers sue for millions. Step 3) Company pays millions to critics and lawyers, nothing to you. Step 4) Wash, rinse, repeat.

This privacy enforcement eco-system has been around for a while but is gaining force. In the last three years, Google agreed to pay $8.5 million for the Buzz debacle, Facebook offered $8.5 million for the Beacon incident and Adobe paid more than $3 million over invasive Flash cookies.

So who the heck is getting all this money?

A tiny scrap goes to “named plaintiffs” — people whose names appear at the top of class action lawsuits. These people stand to earn a few thousand dollars and are used as the face of the lawsuit in the media (allowing law firms to appear less cynical in the process).

But these named plaintiffs receive less than one percent of the multi-million dollar payouts (see this helpful chart). Who gets the rest? It will be no surprise to learn that the lawyers normally rake in about 25 percent of the final awards. More interesting is what happens to the rest of the money.

In the Sponsored Stories case, a legal filing shows the jackpot is earmarked for “groups whose charters set out actions and programs relevant to advocacy.” In practice, this is likely to be the usual suspects like the Electronic Frontier Foundation, the Center for Internet and Society at Stanford Law School and the Electronic Privacy Information Center.

These groups, particularly the EFF, have done a fine job of tracking privacy issues. They are courageous, knowledgeable and capable of researching digital privacy issues that often seem over the head of government regulators. For this reason, courts have been willing to sign off on settlements that award them money.

This is all fine except for one fact: this closed loop of tech companies, lawyers and advocacy groups leaves out the very people whose privacy was violated. Even though the cases are brought in the name of you and me, we get to have nothing to do with the millions paid out out in our name. The same thing is sure to happen again when the next company trips over a privacy law. (Keep in mind that there are dozens more cases out there involving issues like Apple’s bait apps, Netflix’s use of rental histories and so on.)

Time to give internet users skin in the game

The current system’s shortcomings doesn’t mean that direct cash payouts to users are the answer. Such payouts could easily reach billions of dollars and simply destroy, rather than reform, many promising technology firms. At the same time, some companies’ legal problems are tied to an out-of-date law rather than to a serious privacy violation.

Instead, the solution to the lawsuit merry-go-around lies in giving internet users some skin in the privacy game — perhaps by asking courts to let users vote on how to distribute those multi-million dollar privacy awards or by requiring executives to directly answer consumer questions about privacy. This process could also be a useful opportunity to provide consumers with basic education about topics like cookies and data storage.

Until users are directly engaged in the privacy problem, it will remain an insiders’ game between companies, their critics and lawyers that resolves little.

[Images by Anthony Berenyi and Jamie Duplass via Shutterstock]

The FBI and Homeland Security announced the latest seizures in exultant press releases lauding the eighth phase of the “Operation In Our Sites” campaign under which the federal government is seizing the names of websites that sell counterfeit merchandise. Today’s haul included discount-louisvuitton-handbag.com and googlenfljerseys.com.

There is another odd phenomenon that is coinciding with these seizures which typically take place near events like cyber-Monday or the Superbowl. Namely, some of the seized websites are no longer just displaying a US law enforcement badge but are instead redirecting users to YouTube (NSDQ: GOOG) to watch a “public service announcement” about the effects of DVD piracy on the film industry.

This is strange for a couple of reasons. First, many of the sites have nothing to do with films but instead have names like massnike.com and mygolfwholesale.com — how exactly did federal agents come to favor the movie industry over the makers of footwear or golf apparel? (The films can be found on those two sites and others seized in last year’s raid; the films start playing after approximately 10 seconds).

Second, and more importantly, it is not clear if the federal government has the authority to use the seized property this way in the first place. To get a sense of what is taking place, it is helpful to know that the feds are relying on the civil forfeiture provisions of the U.S. Code. Those provisions in turn say that the procedure for seizing property are the same as those set out in a 1970 federal drug law. Significantly, the drug law sets out specific measures about what the U.S. government can do with the property it seizes.

Legal eagles can have fun reviewing the following provisions but the long and short of it is that it appears that the feds are supposed to sell or destroy the material they seize:

(h) Disposition of property
Following the seizure of property ordered forfeited under this section, the Attorney General shall direct the disposition of the property by sale or any other commercially feasible means

[...]

(i) Authority of the Attorney General
With respect to property ordered forfeited under this section, the Attorney General is authorized to

(1) grant petitions for mitigation or remission of forfeiture, restore forfeited property to victims of a violation of this subchapter, or take any other action to protect the rights of innocent persons which is in the interest of justice and which is not inconsistent with the provisions of this section;
(2) compromise claims arising under this section;
(3) award compensation to persons providing information resulting in a forfeiture under this section;
(4) direct the disposition by the United States, in accordance with the provisions of section 881 (e) of this title, of all property ordered forfeited under this section by public sale or any other commercially feasible means,

These provisions mean it is hard to figure out the legal basis for what Homeland Security is now doing with the seized websites. The law seems to demand that the federal government sell or dispose of the domain names — not commandeer them for a public relations campaign. What the agency is doing would be akin to the FBI seizing a cocaine baron’s Lamborghini and then keeping it for a drug awareness project.

The website seizures are already receiving scrutiny from groups like the Electronic Frontier Foundation which has raised First Amendment concerns and compared the practice to wiping a place off the map. The public service announcements, which were first noted by Wired TechDirt, seem to raise even more concerns.

The fed’s cyber-Monday campaign also coincides with similar large scale seizures by private actors like Chanel which recently nuked another 200 websites through a civil lawsuit. Venkat Balasubramani, who reported the story on Eric Goldman’s blog, has noted that the legal authority for these seizures is also shaky and that, at this rate, brand owners may not even need controversial SOPA legislation to take down piracy sites.

[UPDATE: Thanks to Mike Masnick of TechDirt for sharing that the Homeland Security video is actually the property of NBC (NSDQ: CMCSA) and was initially made for a New York City anti-piracy campaign. Ironically, the feds may not have paid to license the video. See Mike's excellent reporting here.]

Bitcoin is a virtual online currency powered by peer-to-peer technology, so no central authority controls its use or monitors transactions. (For a simple explanation of some of Bitcoin’s advantages, see this video.) Bitcoins are created by “miners,” computers running special programs that solve complex math problems at a predictable rate, and are rewarded with bitcoins. Ultimately, there will be 21 million bitcoins in existence.

The currency isn’t backed by any government or organization, so its only value lies in the fact that various individuals and organizations are willing to accept bitcoins as payment. The currency was created by Sakoshi Nakamoto, a name some believe is a pseudonym.

Bitcoin was launched in 2009. Up until a few months ago, it cost less than a dollar to buy a bitcoin (chart). The price crawled steadily upward over April and May, to around $8 per bitcoin.

So what made bitcoins absolutely explode in value earlier this month? Probably the black market. On June 1, Gawker published an article on Silk Road, an anonymous website for buying illegal drugs that used bitcoin. Within two days, the price of bitcoin doubled; within a week, the price had quadrupled, and buying a bitcoin on the major U.S. exchange, Mt. Gox, cost more than $30.

Since that heady high, though, bitcoin traders and users have been hit with a few pieces of seriously bad news.

»  The Gawker article on online drug buying set off Sen. Chuck Schumer (D-NY) right away; just a few days after the Silk Road website was publicized, Schumer condemned bitcoin, equating its use with money laundering.

»  Last week, a prominent bitcoin miner reported that he had been ripped off to the tune of $500,000 worth of Bitcoin after the file that comprised his digital “wallet” was broken into.

»  More seriously, the premier U.S. bitcoin exchange, Mt. Gox, was hacked over the weekend. Mt. Gox employees emphasize that the hacker only got away with $1000 worth of bitcoin. (Mt. Gox places a daily limit on account withdrawals-just like banks generally do with ATM cards.) But news about the hacking caused a massive bitcoin sell-off, and early Monday morning, the price plummeted from about $17.50 USD per bitcoin down to just pennies in a matter of minutes.

Mt. Gox has said it will invalidate those post-hack trades and restore the price of bitcoin to where it was at before the run on the exchange.

But for now the whole exchange continues to be offline; Mt. Gox says it is restoring accounts as it verifies them one at a time.

»  A few prominent early adopters of bitcoins were groups that promote digital privacy and anonymity rights, including the Electronic Frontier Foundation and the Free Software Foundation. But this week, EFF stopped accepting bitcoin donations, saying that the legal implications of the new currency are “very unclear.” In a blog post, EFF legal director Cindy Cohn wrote that “Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others.”

Bitcoin will surely survive all this-there’s too many people too deeply invested in it to allow it to fail. But it’s unlikely that its users will have the same level of confidence that they did a month ago.

The EFF states in a federal court filing — included in full below — that Democratic Underground did not infringe on Righthaven’s copyright, saying that its use of the excerpt fell under fair use, noting that it consisted of less than ten percent of the news article. The EFF also says that Righthaven never tried to get Democratic Underground to remove the content prior to filing the lawsuit.

So far, Righthaven has filed more than 130 lawsuits, according to the EFF. It’s not clear what newspapers have contracted with Righthaven other than the Review-Journal, which, in hiring Righthaven last June declared that it wanted to “stop people from stealing our stuff.” The Sun reported in late August that the company had also added the Arkansas Democrat-Gazette as a client.

Curious about Righthaven’s business model, we reached out to the company last month, but they never responded. We tried again today and will update if we hear back.

The filing:

Answer and Counterclaim