Facebook pitches new $20 million "Sponsored Stories" settlement

Facebook Inc has proposed a revised $20 million settlement in a class action lawsuit accusing it of violating the rights of users through its "Sponsored Stories" advertising feature after a U.S. judge rejected an earlier accord.

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

U.S. District Judge Richard Seeborg rejected an initial settlement proposal on August 17 after questioning why the agreement provided no cash for Facebook users.

The initial agreement provided no money to class members and instead set aside $10 million to be given to charities involved in Internet privacy issues.

The new agreement, which is also subject to Seeborg's approval, allows for some of the funds to go to charity, but only if there is any left after users' claims, attorneys fees and other expenses are met.

But given the size of the class, the charities might still get some cash. The agreement provides that, if it is not economically feasible to pay all the users a cut, the court may designate 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 2 cents per class member.

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

Richard Arnes, a lawyer for the plaintiffs, did not immediately respond to a request for comment.

Filed in 2011, the lawsuit alleged that the social networking site's "Sponsored Stories" feature violated California law by publicizing users' "likes" of advertisers without any compensation or a way to opt-out.

As part of both settlement proposals, Facebook also agreed to give users more control over how their names and likenesses are used.

Facebook's revised agreement also provides new terms on targeting children.

Facebook said it agreed to encourage new users to designate who else on the site is a member of their family. Parents will be able to directly have their children opt-out of the Sponsored Stories feature once their relationship to the child is confirmed.

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

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

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

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