Facebook pitches new $20 million 'Sponsored Stories' settlement

By Nate Raymond

Oct 8 (Reuters) - Facebook Inc has proposed a revised$20 million settlement in a class action lawsuit accusing it ofviolating the rights of users through its "Sponsored Stories"advertising feature after a U.S. judge rejected an earlieraccord.

The new settlement agreement, filed Saturday in U.S.District Court in San Francisco, drops provisions setting asideup to $10 million for plaintiffs lawyers' fees and allows usersto apply for a cash payment of up to $10 each.

U.S. District Judge Richard Seeborg rejected an initialsettlement proposal on Aug. 17 after questioning why theagreement provided no cash for Facebook users.

The initial agreement provided no money to class members andinstead set aside $10 million to be given to charities involvedin Internet privacy issues.

The new agreement, which is also subject to Seeborg'sapproval, allows for some of the funds to go to charity, butonly if there is any left after users' claims, attorneys feesand other expenses are met.

But given the size of the class, the charities might stillget some cash. The agreement provides that, if it is noteconomically feasible to pay all the users a cut, the court maydesignate the entire fund as going to the charities.

The proposed settlement covers nearly 125 million people,court documents show. The $20 million equates to less than 2cents per class member.

"We believe the revised settlement is fair, reasonable, andadequate and responds to the issues raised previously by thecourt," Andrew Noyes, a Facebook spokesman, said on Monday.

Richard Arnes, a lawyer for the plaintiffs, did notimmediately respond to a request for comment.

Filed in 2011, the lawsuit alleged that the socialnetworking site's "Sponsored Stories" feature violatedCalifornia law by publicizing users' "likes" of advertiserswithout any compensation or a way to opt-out.

As part of both settlement proposals, Facebook also agreedto give users more control over how their names and likenessesare used.

Facebook's revised agreement also provides new terms ontargeting children.

Facebook said it agreed to encourage new users to designatewho else on the site is a member of their family. Parents willbe able to directly have their children opt-out of the SponsoredStories feature once their relationship to the child isconfirmed.

Facebook also now has a right to object to plaintiffslawyers' fee applications, unlike the earlier settlementagreement. It was unclear how much the plaintiffs lawyers wouldseek with the new settlement.

Facebook shares closed at $20.40 on Monday, down about 2.4percent.

The case is Fraley v. Facebook Inc., U.S. District Court forthe Northern District of California, No. 11-1726.

(Reporting By Nate Raymond in New York. Editing by AndreGrenon)

((Nate.Raymond@thomsonreuters.com and Twitter@nateraymond)(646-223-6341))