Facebook fights to seal financial info in privacy payout case

Facebook (s fb) and class action lawyers will ask a court today to approve a controversial $20 million settlement over “sponsored stories,” an advertising feature in which Facebook users endorsed products. Meanwhile, a new judge in the case is suggesting that financial information about the value of Facebook users should be unsealed.

The new information comes via a court filing in which U.S. District Judge Richard Seeborg rejects a request that part of the $20 million go to the homeless, and in which he demands that the parties explain why the public should not have full access to the details of the settlement.

For those not following the case, the $20 million settlement came after users sued Facebook for invasion of privacy suit over ads that were based on users’ “Likes.” These “sponsored stories” resulted in some awkward moments, such as when Facebook user Nick Bergus’s friends saw him endorse a 55-gallon drum of personal lubricant. The plaintiffs’ claims are based on California’s “right to publicity” laws which form part of the law of privacy.

What happened next was fairly common. Facebook and the class action lawyers came up with a deal in which Facebook must pay $10 million to privacy groups and another $10 million to the lawyers.

The settlement is part of an ongoing pattern in which a tech company trips over a privacy law and then cuts a check to non-profit groups to make the case go away. Previous examples include a $10 million settlment over Google Buzz and Adobe’s $3 million payout over invasive Flash cookies.

The Facebook “sponsored stories” case, however, has become a flashpoint for complaints that the settlement process isn’t working. The main objection is that the “victims” who are supposed to benefit — individual Facebook or Google (s goog) users whose privacy is violated — receive no money and don’t participate in the process. The non-profit group Consumer Watchdog sent a letter to Judge Seeborg today asking him to reject the settlement because it’s inadequate for consumers (no doubt the group is also miffed that it’s not receiving a share of the spoils).

Should Facebook’s advertising revenue be kept secret?

The Facebook sponsored stories settlement is also significant because Judge Seeborg is suggesting that the parties unseal figures related to Facebook’s advertising revenue.

The sealed numbers reflect the value of an individual Facebook user to an advertiser — for instance, just how much will a company pay for Nick Bergus to endorse that drum of lubricant?

An “expert economist” hired by the plaintiffs claims it will cost Facebook $103 million to stop running sponsored stories. The economist offers calculations based on individual users to support that figure but, as you can see from the screenshot below, the numbers are blacked out:

In his latest order, Judge Seeborg is skeptical that Facebook is entitled to seal the figures:

the interest of putative class members, and the public in general, in having full access to all information bearing on the merits of the motion is especially high. While personal information regarding minors may warrant sealing, it is far from apparent that any other material would, including relevant financial data and information relating to how “Sponsored Stories” operates.

Seeborg’s comments come at a time when document sealing is a sensitive issue in the Northern California district court where the case is being heard. Lawyers for news agency Reuters have been challenging the court’s practice of reflexively sealing documents at the request of Apple and other high-tech firms. Judge Seeborg recently took over the Facebook case after his colleague, Judge Lucy Koh, recused herself without explanation.

Facebook has argued in earlier filings that the sealed information is confidential corporate information that will harm its competitive position if disclosed. The company did not immediately respond to an email request for comment.

Here is Judge Seeborg’s latest order:

Facebook Sponsored Story Refusal to Seal

(Image by Bedrin via Shutterstock)