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Facebook Proposes $20M Settlement for Sponsored Stories Suit

Facebook is proposing to settle a class action lawsuit related to its “Sponsored Stories” lawsuit for $20 million, offering up to $10 each for any of the 125 million affected users that apply, or 2 cents per user if everyone files a claim, Reuters recently reported. The proposal suggests that some of the funds go to charity, but only after paying users’ claims, lawyer fees and other expenses. The proposal also suggests that if no reasonable way can be found for every user to get a piece of the settlement that the entire fund go to Internet charity groups dedicated to privacy issues.

The social network filed the proposal in the US District Court in San Francisco this week.

The proposal follows an earlier settlement offer rejected in August by U.S. District Judge Richard Seeborg that would have set aside $10 million to be given to charities dedicated to Internet privacy. The judge rejected the offer because affected users would have seen no cut of the money, and demanded proof the amount had not been “plucked from thin air,” the New York Times reported.

One of its most promising monetization efforts for its mobile platform, “Sponsored Stories” have been both a boon and a headache for Facebook as it struggles to provide advertising on small mobile screens. Sponsored ads have been shown to deliver 20 to 40 percent higher click-through rates. However, the ads are often not recognized for traditional advertising, and work as simple notices that a friend likes the sponsored page, spreading across the social network through social virality. The users receive no compensation, and when Facebook first launched the ad feature, were given no option to opt out.

The ads have had unintended consequences as well. Nick Bergus inadvertently found himself as Amazon’s spokesperson for a 55 gallon drum of personal lubricant offer after posting the story to his Facebook page as a joke. The ad began showing up on his friend’s feeds, including that of a co-worker’s wife and a former employee of a magazine he still wrote for.

As part of the lawsuit, Facebook has agreed to allow users more control over the use of their likeness, and provided special provisions for children that allowed parents to opt out.

”We believe the revised settlement is fair, reasonable, and adequate and responds to the issues raised previously by the court,” Facebook said in a statement.

Judge Seeborg will hear the matter on Oct. 25. Whether 2 cents per user will be enough to settle the law remains to be seen. Facebook theoretically faces billions of dollars in damages with this suit, as $10 per user at 125 million users without a cap comes to $1.25 billion, a serious pinch that could buy untold gallons of personal lubricant for anyone so inclined.

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