Judge rejects Facebook settlement over ad feature

The sun sets on the entrance sign at Facebook's headquarters in Menlo Park, California, the night before the company's IPO launch, May 17, 2012.

SAN FRANCISCO (Reuters) - A U.S. judge rejected Facebook Inc's proposed legal settlement to resolve allegations that the social networking company violated its members' rights through the its 'Sponsored Stories' advertising feature.

In an order on Friday, U.S. District Judge Richard Seeborg in San Francisco listed several concerns with the proposed settlement, including a request for more information on why the agreement does not award any money to members.

Seeborg said the company and attorneys for the plaintiffs could try to modify their agreement to address his concerns.

"We continue to believe the settlement is fair, reasonable, and adequate," a Facebook spokesman said in a statement. "We appreciate the court's guidance and look forward to addressing the questions raised in the order."

Representatives for the plaintiffs could not immediately be reached for comment.

Five Facebook members filed a lawsuit seeking class-action status against the social networking site, saying its Sponsored Stories feature violated California law by publicizing users' "likes" of certain advertisers without paying them or giving them a way to opt out. The case involved 100 million potential class members.

As part of the proposed settlement, Facebook agreed to allow members more control over how their personal information is used. In the opinion of one economist hired by the plaintiffs, contained in a court filing, the value to Facebook members resulting from the changes is about $103 million.

Facebook had also agreed to pay $10 million for legal fees, and $10 million to charity, according to court documents.

The case is Angel Fraley et al., individually and on behalf of all others similarly situated vs. Facebook Inc, U.S. District Court, Northern District of California, 11-cv-1726.

(Reporting By Dan Levine; Editing by Gary Hill)