Google Privacy Settlement Gets Scrutiny From U.S. Supreme Court

(Bloomberg) -- The U.S. Supreme Court will use a privacy case involving Google to consider making it harder for companies to settle class-action lawsuits without providing direct compensation to those affected.

The justices agreed to hear arguments from two people who object to the Alphabet Inc. unit's $8.5 million settlement of claims that it improperly disclosed users' internet search terms to the owners of outside websites.

The case centers on what critics say is an increasingly common litigation tactic, used by Facebook Inc. as well as Google. The settlement was a "cy pres" accord, meaning that much of the money went to outside groups to promote the protection of internet privacy. None of the money went directly to Google users.

Objectors Theodore Frank and Melissa Ann Holyoak urged the court to put tighter limits on those accords. The court should "correct a serious abuse of the class action mechanism that puts the interest of those it is intended to protect, class members, last," they argued in their appeal.

The lawsuit focused on the design of Google's search engine, which creates a unique web address for each search, with the terms typed by the user included as part of it. The address then becomes part of the information transmitted by the web browser as part of the "referral header" they routinely send to the destination website.

Google was sued in 2010 and later agreed to pay $8.5 million to settle the case, with a quarter of the sum going to attorney fees. Most of the rest went to six organizations, including four universities, that promised to use the money to promote the protection of internet privacy. A federal appeals court upheld the settlement.

Google says it would have been infeasible to distribute a little more than $5 million to an estimated 129 million class members.

"The cy pres payments will benefit the class as a whole by funding closely targeted projects that are directly connected to the internet privacy issues raised by plaintiffs' claims," Google argued.

The court will hear arguments and rule during the nine-month term that starts in October. The case is Frank v. Gaos, 17-961.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, Justin Blum

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