Written by Kevin McGinty
On Monday, a federal judge in Los Angeles issued an order granting final approval to a previously-announced settlement of consolidated class actions alleging that the use of so-called “flash cookies” in connection with advertising on web sites resulted in unauthorized tracking of web users’ browsing activity. In addition, plaintiffs alleged that the flash cookies were configured to “respawn” when users attempted to delete them from their hard drives. The named defendants in the consolidated class actions include three companies that deliver web-based advertising – Quantcast Corporation, Clearspring Technologies, Inc. and VideoEgg, Inc. – as well as several major online media providers, including ABC, Demand Media, ESPN, Fox Entertainment Group, Hulu, JibJab Media, MTV, MySpace, NBC, Scribd, Soapnet, Walt Disney Internet Group, and Warner Bros. Records.
According to the court-approved settlement notice, the settlement consists of injunctive and monetary relief. The injunctive relief will require, among other things, that defendants to cease using respawning cookies, to amend their privacy policies to disclose how to opt out of certain types of behavioral advertising tracking and to request that online advertisers adopt self-regulatory principles that would prohibit the use of respawning cookies in online advertising. The monetary component of the settlement consists of total payments of over $3.2 million. Of that amount, however, up to $806,250 will be paid to class counsel. Another $15,000 will be paid to ten named plaintiffs in payments of $1,500 apiece. The balance of the settlement fund will be paid as a so-called “cy pres” payment to non-profit organizations represented to have a nexus to online privacy issues. The universe of potential class members other than the ten named plaintiffs will receive nothing.
The structure of this settlement – in particular, the payment of settlement funds to charities instead of to class members – highlights the types of problems that can arise when attempting to craft class action relief for alleged violations of the privacy interests of web browsers. The class, which consists of every person who visited defendants’ popular websites, includes millions of individuals who are only identifiable by their IP addresses. There is no practical way to match any type of monetary recovery to the persons alleged to have been injured. In such circumstances, cy pres settlements serve as a surrogate for making payments to actual class members. A cynical view of such settlements is that their only purpose is to provide a convenient basis for quantifying and justifying class counsel fees. Nonetheless, parties are likely to resort to cy pres settlements to resolve class actions in which there is no information to permit efficient identification of class members such home address, credit card data or billing information.