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.

For the unfamiliar, “Sponsored Stories” is Facebook’s term for drafting its users as product pitchmen based on their “Likes.” Here are some examples taken from the revised legal settlement filed Friday in California:

Facebook feels the ads are fair since users pay nothing for its services. But the company landed in hot water because the “Sponsored Stories” appear to violate a California law that forbids companies from using people’s endorsements without their permission.

To make the issue go away, Facebook followed a familiar playbook when tech companies get sued over privacy issues: throw a pile of money at lawyers and privacy groups. This has worked many times in the past for Google and others but, unfortunately for Facebook, one judge finally had enough. In August, U.S. District Judge Richard Seeborg refused to sign off on a $20 million plan, noting that lawyers had plucked numbers out of “thin air” and that the Sponsored Stories stars got nothing. Now, under the new plan, reported by Wired, Facebook could pay real cash money to users.

This time, users could get up to $10 if the judge approves the deal, but a closer look at the filing shows this is unlikely to happen. As it turns out, users will only get $10 if there is enough to go around after lawyer and other expenses are paid. If too many of the estimated 125 million eligible people claim the money, everyone’s share will be reduced accordingly. And if the reduced amount falls below $5 per person, the Court has the discretion to give it to the usual suspects — the privacy groups.

This isn’t the only strange feature of the new deal. Another is the notification process. Under the new settlement, Facebook is obliged to create a website and to notify users via email and to place ads in USA Today. This is all well and good but there is no obligation to notify them through, I dunno, Facebook.

The deal also provides lawyers to ask the Court for their share of the $20 million later on but doesn’t specify how much they’ll get. It also obliges Facebook to create a control panel of sorts for users to manage their role in the Sponsored Stories scheme but many of the details are fuzzy.

Overall, the deal is slightly better for consumers but it may not go far enough to charm Judge Seeborg. Here’s a marked up copy of the settlement if you want to decide for yourself:

Fraley v. Facebook Settlment 2

The new information comes via a court filing in which U.S. District Judge Richard Seeborg rejects a request that part of the $20 million go to the homeless, and in which he demands that the parties explain why the public should not have full access to the details of the settlement.

For those not following the case, the $20 million settlement came after users sued Facebook for invasion of privacy suit over ads that were based on users’ “Likes.” These “sponsored stories” resulted in some awkward moments, such as when Facebook user Nick Bergus’s friends saw him endorse a 55-gallon drum of personal lubricant. The plaintiffs’ claims are based on California’s “right to publicity” laws which form part of the law of privacy.

What happened next was fairly common. Facebook and the class action lawyers came up with a deal in which Facebook must pay $10 million to privacy groups and another $10 million to the lawyers.

• See:“Facebook’s $10 million privacy payout: why you get nothing”

The settlement is part of an ongoing pattern in which a tech company trips over a privacy law and then cuts a check to non-profit groups to make the case go away. Previous examples include a $10 million settlment over Google Buzz and Adobe’s $3 million payout over invasive Flash cookies.

The Facebook “sponsored stories” case, however, has become a flashpoint for complaints that the settlement process isn’t working. The main objection is that the “victims” who are supposed to benefit — individual Facebook or Google users whose privacy is violated — receive no money and don’t participate in the process. The non-profit group Consumer Watchdog sent a letter to Judge Seeborg today asking him to reject the settlement because it’s inadequate for consumers (no doubt the group is also miffed that it’s not receiving a share of the spoils).

Should Facebook’s advertising revenue be kept secret?

The Facebook sponsored stories settlement is also significant because Judge Seeborg is suggesting that the parties unseal figures related to Facebook’s advertising revenue.

The sealed numbers reflect the value of an individual Facebook user to an advertiser — for instance, just how much will a company pay for Nick Bergus to endorse that drum of lubricant?

An “expert economist” hired by the plaintiffs claims it will cost Facebook $103 million to stop running sponsored stories. The economist offers calculations based on individual users to support that figure but, as you can see from the screenshot below, the numbers are blacked out:

In his latest order, Judge Seeborg is skeptical that Facebook is entitled to seal the figures:

the interest of putative class members, and the public in general, in having full access to all information bearing on the merits of the motion is especially high. While personal information regarding minors may warrant sealing, it is far from apparent that any other material would, including relevant financial data and information relating to how “Sponsored Stories” operates.

Seeborg’s comments come at a time when document sealing is a sensitive issue in the Northern California district court where the case is being heard. Lawyers for news agency Reuters have been challenging the court’s practice of reflexively sealing documents at the request of Apple and other high-tech firms. Judge Seeborg recently took over the Facebook case after his colleague, Judge Lucy Koh, recused herself without explanation.

Facebook has argued in earlier filings that the sealed information is confidential corporate information that will harm its competitive position if disclosed. The company did not immediately respond to an email request for comment.

Here is Judge Seeborg’s latest order:

Facebook Sponsored Story Refusal to Seal

(Image by Bedrin via Shutterstock)

The recusal, which was first reported in a tweet by Reuters reporter Dan Levine, was confirmed in a one-page court filing in which Koh stated that the case was referred to an assignment committee that would assign it to another judge.

Koh’s announcement is remarkable because she has been presiding over the case for more than a year and because the recusal comes just a day before a scheduled hearing in San Jose to discuss the proposed settlement.

Under the terms of the settlement, Facebook will pay a few thousand dollars to the lead plaintiffs in the case while lawyers and privacy advocacy groups will get the rest. (For more details, see “Facebook’s $10 million privacy payout: why you get nothing.”)

There have been no reports so far about why Koh stepped away from the case and court records do not show any request for recusal. The most common reason for judges to recuse themselves are when they are acquainted with one of the parties in the case or when they have a financial interest in the case’s outcome.

Here’s a copy of the recusal order:

Koh Recusal

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]