Facebook Settles Class Action Lawsuit & Shuts Down Its Beacon Advertising Service

Facebook, Inc. has agreed to shut down its Beacon advertising service as part of a settlement of a class action lawsuit filed in August 2008 against the company and its Beacon affiliates. You may remember that the Beacon service received much negative media coverage when the Beacon service failed to provide Facebook members' (and non members) with adequate notice and consent mechanisms, which resulted in the disclosure of the consumers' product purchases.

In October 2008, Facebook, Inc. filed a motion to dismiss the class-action complaint. In September 2008, Facebook, Inc. and the class-action attorneys entered into negotiations. The settlement agreement was reached before a court could rule on the dismissal motion. The settlement agreement must be approved by the U.S. District Court for the Northern District of California, where the lawsuit was filed.

I reviewed the class-action settlement agreement, which includes the following:

1. Facebook, Inc. gets to deny any wrong-doing,
2. The two plaintiffs (Sean Lane and Mohammad Sheikka) receive $15,000 and $7,500 respectively,
3. Facebook, Inc. agrees to pay the plantiffs' class-action attorney fees,
4. Facebook, Inc. agrees to set up a privacy foundation funded with $9.5 million (less attorney's fees). The purpose of the foundation is to "fund projects and initiatives that promote the cause of online privacy, safety, and security."  To start, the foundation will have three directors selected by both Facebook's attorneys and the plaintiffs' class-action attorneys.
5. The settlement agreement covers "Protected Persons" (Facebook executives, and some of its Beacon affiliates, such as Blockbuster, Fandango, Overstock.com, Zappos.com, and Gamefly.)

ls this a good settlement? I think so, even though the settlement doesn't mention any damages. Why? Facebook, Inc. will pay an ongoing "price" in the form of the privacy foundation to help consumers. That's a lot more than the company probably would have done otherwise. And, it sets a clear consequence for companies that rush to make money while ignoring consumers' privacy, consent, and notification needs.

Congratulations to the Privacy Crusaders! First, NebuAd and now a new privacy foundation funded by Facebook.