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Facebook Settling ‘Sponsored Stories’ Privacy Lawsuit

Photo: Marco Fieber/Flickr

Facebook is agreeing in “principle” to settle allegations that its “Sponsored Stories” advertising platform breached its users’ privacy.

Terms of the deal (.pdf) were not immediately disclosed. The suit, (.pdf) filed in April 2011, claimed that the social-networking site did not adequately provide a way to opt out of the advertising program that began in January 2011.

Sponsored stories work like this: If a Facebook user “likes” an advertiser, that user’s profile and picture may appear on some of their friends’ Facebook pages — in ads — stating that the person, indeed, “likes” that advertiser. Facebook also reserves the right to do this on ads that appear on sites other than Facebook, though it has not done that.

Facebook and class-action attorneys were set to hold oral arguments Thursday in a San Jose, California, federal courtroom on whether the case could proceed as a class action representing perhaps millions of Facebook users. The lawyers wrote U.S. District Judge Lucy Koh on Tuesday that they have executed “a term sheet memorializing their settlement in principle.”

The development comes on the third trading day following Facebook’s IPO. It closed at $31, down from the original $38 asking price on Friday. The settlement agreement will eventually become public and requires Koh’s signature.

In November, the Federal Trade Commission slapped Facebook’s hand and settled government charges it “deceived” users that their information would be kept private, although it was “repeatedly” shared with the public.

The FTC deal, among other things, required Facebook to submit to a privacy audit every two years for the next two decades. The accord, which carried no financial penalties, demands that the social-networking site obtain “express consent” of its 850 million users before their information “is shared beyond the privacy settings they have established.”

Regarding Tuesday’s settlement, the ad settings at issue are not contained in Facebook’s privacy settings, and instead are in a section called Facebook Ads under the main profile settings.

While terms of Tuesday’s settlement were not lodged with Judge Koh, we suspect they will be similar to a 2010 settlement in a different Facebook privacy flap.

In that case, a  federal judge approved a $9.5 million settlement to a class-action lawsuit challenging Facebook’s so-called “Beacon” program that monitored and published what users of the site were buying or renting from Blockbuster, Overstock and other locations without users’ permission.

The lawyers in that case were awarded about $3 million of the pot, and the remainder was earmarked for grants to study online privacy.

Facebook, without admitting wrongdoing, terminated the Beacon program, though much of it has resurfaced under the guise of Facebook’s so-called “frictionless sharing.”

Under the latest deal, Facebook users likely would have to opt in to participate in the “Sponsored Stories” program or be provided a clear mechanism to opt out. It was not immediately known whether Facebook would kill the “Sponsored Stories” program.

The five named plaintiffs in the case will likely receive several thousand dollars each, while Facebook likely will admit no wrongdoing.

The plaintiffs’ lawyers, who likely will reap millions in the latest case, did not immediately respond for comment. Facebook declined comment.

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Sanctions, Legal Fees Piling Up for Man Claiming Facebook Ownership

Paul Ceglia

The man who claims a 50 percent stake in Facebook was ordered Thursday to pay the social-networking site’s attorneys an additional $16,851, bringing to nearly $97,000 in sanctions and fees a federal judge has levied against Paul Ceglia in a bizarre lawsuit over the company’s origins.

The order from U.S. Magistrate Leslie Foschio comes in a lawsuit Ceglia brought against Mark Zuckerberg, Facebook’s chief. Ceglia claims a 2003 contract between him and Zuckerberg, allegedly crafted while Zuckerberg was a Harvard University student, promised him half of the company. It’s a contract that Zuckerberg and Facebook’s forensic experts have maintained is forged.

The $97,000 likely means little to Facebook monetarily as it is preparing for a $100 billion IPO that could net Zuckerberg $1 billion. But Facebook has shown no sign that it is willing to pay Ceglia to go away — as it did with the Winklevoss twins who accused Zuckerberg of stealing their idea after they hired him to help code their own social network.

The sanctions and fees (.pdf) against Ceglia began piling up in January, when a judge ordered the Buffalo wood-pellet salesman to pay $5,000 for stonewalling an order to provide his passwords to e-mail accounts so Facebook’s forensics experts could examine them. Facebook’s investigators say those accounts included an original engineering contract between the two that didn’t involve Facebook.

Along with the original $5,000 sanction, a judge tacked on an additional $75,776, at Facebook’s request, to pay for Facebook’s legal bills while trying to enforce the original order that Ceglia produce his e-mail and passwords.

Adding salt to a wound, Magistrate Foschio on Thursday added another $16,851 to the tab (.pdf), for Facebook’s expenses “incurred preparing and defending the initial fee application.”

Ceglia has two weeks to pay the money, or to provide his tax returns and financial statements proving he can’t afford it.

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How Forensics Claims Facebook Ownership Contract Is ‘Forged’

An allegedly forged e-mail between Zuckerberg and Ceglia. The "-400" in the dateline denotes Eastern Daylight Time (or summer time), but e-mail was purportedly sent in February, which is Eastern Standard Time, or -0500.

Hoping to blast away a lawsuit with digital science, Facebook asked a federal judge Monday to dismiss a long-running case brought by New York resident Paul Ceglia who claims he owns half of the social networking site.

Ever since Ceglia filed suit in 2010, Facebook has made it clear it believes the contract and e-mails that Ceglia has produced as evidence are fakes — and it even hired private investigators to dig up dirt on Ceglia‘s none-too-sparkly past.

As we reported Monday, Facebook told a federal judge that its forensic examiners proved that a 9-year-old contract between Ceglia and Facebook chief Mark Zuckerberg was “forged.” The analysis also claims that 27 e-mails between Zuckerberg and Ceglia — some of which mention Facebook — were “fabricated” by Ceglia.

Zuckerberg has said all along that the authentic “Work for Hire” contract involved another project. Ceglia hired Zuckerberg to work on Ceglia’s StreetFax company nearly a decade ago, Zuckerberg claims. Ceglia, however, alleges the contract also included fronting Zuckerberg $2,000 in exchange for half of Facebook when Zuckerberg was a Harvard University computer science student.

The voluminous filings on Monday included e-mails subpoenaed from Zuckerberg’s Harvard e-mail account and a 102-page digital forensics report on evidence found in Ceglia’s computers and e-mail accounts.

We dug into the report by Stroz Freidberg, (.pdf) a New York forensics company, to see how Facebook’s forensic team is arguing that Ceglia is trying to scam Facebook. The analysis was based on Ceglia having turned over hard drives, laptops, desktops and other gear as part of a court order:

Here is a brief sampling of the reports allegations, which have not been proven yet in a court of law.

  • Facebook said it had discovered the original “Work for Hire” contract on Ceglia’s computer and one e-mailed in 2004 to a Ceglia lawyer — neither of them mention Facebook, despite allegations from Ceglia that the contract includes Facebook. Ceglia has since claimed these were planted post-facto on his computer and his lawyer’s by Facebook.
  • Two TIFF images were discovered by examining Ceglia’s sent mail, which was found by investigators opening a file named “Sent Items.dbx.” on Outlook Express. The examiners found what they say was the original 2003 contract, which does not reference Facebook. The contract was also e-mailed to a Ceglia attorney at the firm Sidney Austin in 2004. The firm produced the e-mail pursuant to a subpoena, which had the same image of the contract attached. An examination of the e-mail metadata shows the e-mail was sent to the attorney on March 3, 2004, six years before the lawsuit was filed.
  • Twenty-seven e-mails allegedly between Ceglia and Zuckerberg, some of which reference a Facebook deal, were not discovered on Ceglia’s hard drives. Ceglia said he cut-and-pasted the e-mails into Microsoft Word documents, the text of which a metadata analysis concluded was backdated.”This metadata anomaly constitutes evidence of backdating because a file that was last modified in October 2003 could not contain authentic emails from July 2004,” the forensic report said. What’s more, the e-mail on the Word files contain fudged date lines for the time the e-mail was “purportedly sent.”

    At the end of each ‘Date’ line, the time zone that the email was purportedly sent in is indicated with an offset of the format ‘+HHMM’ or ‘-HHMM.’ HHMM indicates hours and minutes from Coordinated Universal Time (‘UTC’); the + or – indicates whether the time zone is before or after Coordinated Universal Time. For example, Eastern Daylight Time is represented as ‘-0400′ and Eastern Standard Time is represented as ‘-0500.’ Standard time was in effect in the United States from late October 2003 to early April 2004.

    Thus, one would expect that authentic e-mails sent during that time period from a location in the Eastern Time Zone would contain the ‘-0500′ stamp, in the absence of an inaccurate system clock. However, all but one of the 27 purported e-mails contain the ‘-0400′ time zone stamp for Eastern Daylight Time, including all of the purported e-mails supposedly sent between Oct. 26, 2003 and Apr. 4, 2004.

  • The original, signed “Work for Hire” contract, which was attached to the lawsuit, was not discovered on Ceglia’s computers or the hard drives and USB storage devices Ceglia turned over. The investigators said they found “seven unsigned versions” of the contract “that are very similar but not identical to the Work for Hire Document. All seven of those electronic documents contain metadata anomalies indicative of backdating and document manipulation.” The metadata shows they were backdated to 2003 when Zuckerberg, as a Harvard University student, agreed to perform the contracted work for Ceglia. But the copies of the contract were created in 2011. And they all had “significant” formatting differences. The margin space varies, from 0.32 inches, to 0.03 inches to 0.13 inches.
  • Ceglia reinstalled Windows at least twice, including in late December 2010 — months after he’d filed suit against Facebook. While there are many good reasons to reinstall Windows, there are some not-so-legit ones as well. Facebook’s forensic team imaged Ceglia’s hard drive in March 2011, which showed an install date of late December 2010.

    The reinstallation of an operating system is a destructive action that may have the effect of overwriting existing data on a hard drive. In Stroz Friedberg’s experience with electronic forgery cases, the reinstallation of an operating system can be done in an effort to destroy or conceal data.

    Stroz Friedberg determined that the Windows operating system on the Seagate Hard Drive and the Forensic Image Created by Plaintiff’s Expert of that drive was reinstalled on at least two occasions.

A hearing on the motion to dismiss is set for Apr. 4 in New York federal court. Ceglia’s attorney, Dean Boland, denies the claims made by Facebook’s experts.

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Lawmaker Demands DHS Cease Monitoring of Blogs, Social Media

Rep. Jackie Speier (D-California) has demanded an end to DHS online monitoring. Photo: Courtesy Rep. Speier

Rep. Jackie Speier (D-California) said Thursday she wants the Department of Homeland Security to cease its social-media and news-monitoring operation.

Speaking at a Homeland Security subcommittee hearing, the California lawmaker said she was “outraged” that the agency has hired a contractor to review a variety of social networking sites, including Facebook and Twitter, and that General Dynamics is being tasked with reviewing news sources, blogs and their bylines for all types of articles, including those containing anti-American sentiment and reaction to policy proposals.

“This should not be a political operation,” she said.

Speier said she found it particularly egregious that the department was analyzing the authors behind the online words.

“I find that outrageous,” she said during the 90-minute hearing of the Subcommittee on Counterterrorism and Intelligence. She said the agency should amend its $11 million contract with General Dynamics “to prevent that type of information from being collected.”

The monitoring largely came to light in January after the Electronic Privacy Information Center sued the DHS to obtain information about the little-known program. Some of the sites on its watchlist included Wikileaks, Drudge Report and, among others, Wired’s Threat Level and Danger Room blogs.

Mary Ellen Callahan, the DHS chief privacy officer, said, “We are just focusing on the event, the situation that is going on, and not worrying about the individual.”

But Callahan also said that the agency, indeed, does analyze who the author is of a particular work to determine if the report is “relevant and adds credibility to the report itself.”

Speier countered, saying: “I’m suggesting to you that it is irrelevant and you don’t need it and you should suspend that part of the contract.”

Callahan said, “We don’t collect information on individuals. We don’t monitor them in regards to First Amendment activity.”

Ginger McCall, an EPIC attorney, said in a telephone interview that the privacy group wants DHS to abandon the program (.pdf), which dates to at least 2006.

“We have asked for the program to be suspended,” she said. She added that EPIC wants DHS to “suspend the collection of public reaction and reports to policy proposals that reflect adversely on DHS or the government.”

Speier, during the hearing, said: “I for one wholeheartedly agree with their recommendations.”

Rep. Patrick Meehan (R-Pennsylvania), the subcommittee’s chairman, suggested the program had a “chilling effect” leading to a “forfeit” of “an expectation right of privacy.” Neither he nor anybody else in the 12-member committee went as far as Speier to suggest that the DHS abandon the “Social Networking/Media Capability” program.

According to the records EPIC obtained, the program involves the monitoring of “publicly available online forums, blogs, public websites and message boards.”

The documents showed that, in 2009, the DHS monitored residents’ reaction to an Obama administration proposal, now scuttled, to transfer detainees from Guantanamo Bay, Cuba, to a prison in Standish, Michigan.

Richard Chavez, the DHS director of office operations, was asked by the subcommittee why the government even needed to contract with General Dynamics to monitor the internet, and instead perform that mission with government staff.

Chavez said the contractor employed “skilled technicians in surfing the web.”

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Facebook Flaw Exposes Private Photos

A flaw in Facebook’s image reporting tool allows users to view the private photos of other users, including those of Facebook founder Mark Zuckerberg — like the one at the top of this story.

The flaw was found by members of a bodybuilding forum, who discovered that if they reported a public Facebook photo for abuse – using the tool that Facebook offers to report nudity or pornography – they could access other nonpublic photos for the same user they’re reporting, according to ZDNET.

Facebook’s tool asks the reporting user to help Facebook “take action by selecting additional photos to include with your report” then displays a handful of other private photos belonging to the individual that’s being reported. The person reporting the abuse, can then rifle through the user’s other images.

Members of the bodybuilder forum used the flaw to peruse the images of women they found attractive. They then targeted Zuckerberg and began viewing his private photos, and posted some of them to an image site.

Facebook told ZDNET it’s investigating.

The FTC recently slapped Facebook’s hand for deceiving users into thinking that their information would be kept private, although it was “repeatedly” shared with the public.

The deal, which carries no financial penalties, demands that the social-networking site obtain “express consent” of their 850 million users before their information “is shared beyond the privacy settings they have established.”

UPDATE 12:00PM PST: A Facebook spokesperson has issued a statement saying that the bug has been fixed. The bug was “discovered in one of our reporting flows” that allowed users to report multiple instances of inappropriate content. The code was live “for a limited period of time” and affected an unspecified limited number of users before being fixed.

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