:: Deepquest ::

Facebook is denying it illegally breached the privacy of its users in a proposed $9.5 million settlement to a class action challenging its program that monitored and published what users of the social-networking site were buying or renting from Blockbuster, Overstock and other locations.

To settle allegations that the social networking site’s “Beacon” program breached federal wiretap and video-rental privacy laws, Facebook is agreeing to seed what the agreement is calling a “Digital Trust Fund” that would issue more than $6 million in grants to organizations to study privacy. Facebook would have a seat on the fund’s three-member board — a move raising some eyebrows in the privacy community.

A fairness hearing on the issue is set for Feb. 26 in a San Jose, California, federal court. The judge presiding over the case, Richard Seeborg, gave preliminary approval to the deal three months ago.

Attorneys who faced off against Facebook are to receive about $3 million of the $9.5 million pot, as much as $500 an hour in some instances, according to documents lodged in the case. Only a handful of the estimated 3.6 million class members are to receive financial damages. Video Privacy Protection Act breaches carry fines of not less than $2,500.

Plaintiffs lawyers in the case said it was a good deal they struck with a wealthy company that contends it did no wrong and was willing to go to trial to defend its position.

Lead attorney Scott Kamber, in a telephone interview Thursday, said, “There is a difference between a settlement and a resolution five years down the road after a trial and an appeal. There are comprises that are required.”

In court documents, Kamber’s legal team told the judge that Facebook contends it “acted properly” and that the class is not “entitled to any form of damages based on the conduct alleged in the complaint.” Facebook maintains that position despite Facebook founder Mark Zuckerberg’s public apology that it made “mistakes.”

Under the settlement, Kamber said, Facebook agreed to terminate the Beacon program last November.

When the program was launched in 2007, Facebook members’ Blockbuster movie rentals sometimes appeared on their news streams. Lead plaintiff Sean Lane’s wife found out, via Facebook, about a jewelry purchase her husband was to surprise her with. “Sean Lane bought 14k White Gold 1/5 ct Diamond Eternity Flower Ring from overstock.com,” was announced to all of the husband’s Facebook friends, including his wife.

Facebook, with some 350 million users, did not return e-mail or telephone calls for comment. In the proposed settlement agreement, it staunchly defended the Beacon program.

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