Facebook wins approval to create privacy group

A federal judge approved Facebook Inc.'s settlement of a lawsuit that provides $9.5 million for a privacy foundation created by the company and lawyer fees, with no money for users who sued.

U.S. District Court Judge Richard Seeborg in San Jose, California, said the foundation is a better use of the settlement money than splitting it among the 3.7 million consumers represented in the group, or class action, lawsuit, according to court papers filed today. Most of the consumers in the lawsuit, which alleged privacy violations, approve the accord, he said in ruling that the settlement was fair.

Seeborg also ruled that there's no evidence that the foundation will be "under Facebook's direct control." Two- thirds of the settlement will fund a nonprofit foundation that finances projects to promote online privacy, court records say. Facebook will provide the initial foundation bylaws with lawyers for customers and one of three foundation directors may be chosen by Facebook, according to court filings.

"While the director associated with Facebook may reasonably be expected to exercise his influence against the foundation taking any actions that would clearly and directly harm Facebook, there is no persuasive showing that the foundation will be a mere publicity tool for Facebook," Seeborg said in his ruling.

"The independent foundation will fund worthy projects helping protect and improve internet users' privacy, safety and security," Barry Schnitt, a Facebook spokesman, said in an e- mailed statement. One-third of the settlement funds go to attorneys fees, according to court documents.

"I hope that this will answer any question that may have been asked through this process regarding the foundation and its independence," Scott Kamber, an attorney for the plaintiffs, said in a telephone interview. "The judge's analysis of the evidentiary record reflects that this settlement and the foundation will best serve the class."

The lawsuit, filed in 2008, involved a program started by Facebook in 2007 called Beacon, which collected information about users' online activities, including purchases. The complaint alleged that Facebook obtained the information without users' informed consent. Facebook denied wrongdoing. The company terminated Beacon after Seeborg granted preliminary approval of the settlement in October, Kamber said.

Mark Chavez, an attorney for one of four members of the plaintiffs' group to file an objection to the settlement, said he was considering whether to appeal the judge's ruling.

"From my perspective the record didn't establish that the damage claims were so weak that the settlement is at the appropriate level," said Chavez in a telephone interview. The foundation "doesn't really seem to advance the purpose under which the case was filed, which is to address harm to customers."

The case is Lane v. Facebook, 08-3845, U.S. District Court, Northern District of California (San Jose).