In September 2009, Facebook reached a settlement regarding its Beacon advertising program. To learn more, check out our earlier post on appslawblog.com.

In the settlement, Facebook agreed to stop the program and give $9.5 million to a new organization to study online privacy. This was a big turnaround for Facebook after the Beacon debacle.

Like the case’s settlement process, the agreement has hit a bit of a snag. Numerous privacy groups have sent a letter to U.S. District Court Judge Richard Seeborg in the Northern District of California. The groups say they are concerned that the organization Facebook is paying will not be independent. The groups prefer the money be used to fund existing nonprofits serving the same purpose.

An official objection to the class action settlement has already been filed. EPIC attorney Ginger McCall claims the settlement would not provide class members with relief aside from Facebook’s promise to disband the Beacon advertising program, which it voluntarily shut down a while ago. Furthermore, the organization that Facebook would be paying is neither independent nor needed.

There is also an issue with attorneys’ fees for the plaintiffs; one attorney mentioned is Scott Kamber. Multiple parties have complained that the fees are egregious.

The fee issues were to be addressed on Feb. 26, 2010, by Judge Seeborg in Kamber’s motion to approve the settlement.

There are clearly internal questions among the lawyers and parties involved over who should control the settlement fund, an important question to that needs to be resolved.

Should EPIC be in control? What about the new privacy organization Facebook would like to give the money to?

Yahoo reports that the organization would have three directors: Larry Magid, an Internet safety advocate; Chris Hoofnagle, an University of California at Berkeley law professor; and Facebook executive Tim Sparapani. Kamber and Rhodes would be on the legal advisory board.

The organization will supposedly become a “public relations organization for Facebook” and will not protect Internet users.

There certainly appear to be conflicts of interest, depending uponwhomo receives control over the settlement funds.

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Facebook generates revenue through advertising and apps.  The Beacon ad program began with a promising future, but took several bad turns.  To put it simply, the Beacon ad program essentially told Facebook members about their friends’ e-commerce activity.

However, a unexpected problem came to light; the program also tracked non-Facebook users. PC World reported that Beacon kept tabs on activities of all users in third-party partner sites, including people who never signed up for Facebook or who deactivated their Facebook accounts.  That information included the addresses of Web pages a user visited and information on action taken at the partner site. As a result, the privacy concerns that plagued Beacon from the first day turned into lawsuits.

In California, preliminary approval has been given to Facebook’s settlement of a class-action lawsuit regarding Beacon. But the resolution of the other legal actions is more complicated.  Some consumers who are pursuing two other Beacon-related lawsuits in Texas attempted to intervene in the case, but a federal magistrate rejected their effort. The magistrate ruled that the motion to intervene was filed over a year after the lawsuit was initially brought, and therefore was untimely.

Some consumers in Texas are attempting to pursue their own class-action lawsuits against Facebook and Blockbuster (a large participant in the Beacon ad program).  However, if the California settlement is approved, the Texas lawsuits may be dismissed even though the Texas lawsuit against Blockbuster was filed before the California case.

MediaPost reports:

“The California agreement, entered into last month, calls for Facebook to shutter Beacon permanently and to pay $9.5 million, approximately two-thirds of which will fund a new privacy foundation. The individual consumers named in the complaint would receive damages ranging from $1,000 to $15,000, and their lawyers would be eligible to receive up to one-third of the settlement fund.”

Conversely, Texas consumers might be entitled to at least $2,500 each if their lawsuit proceeds.  A federal law (Video Privacy Protection Act, 18 U.S.C. § 2710) aimed specifically at protecting the confidentiality of movie rental records provides for up to $2,500 in damages.  Moreover, although Blockbuster’s contract with users calls for disputes to be heard by an arbitrator, a federal judge in Dallas ruled that the case could proceed in court.  The judge also ruled that because the agreement in Blockbuster’s contract allowed for the company to change the terms and conditions at any time, it was an “illusory” contract. Blockbuster now has a pending appeal in the Fifth Circuit Court of Appeals.  Additionally, those Blockbuster customers in Texas have also filed a lawsuit against Facebook.

The outcomes in California and Texas jurisdictions will also play a role in other cases involving Beacon, Blockbuster, and Facebook.   The judge in the California case could grant final approval to the settlement but he also told the lawyers to address whether the final agreement should cover Facebook members who might have claims under the Video Privacy Protection Act.

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