The 2-1 ruling on Thursday came from the 9th U.S. Circuit Court of Appeals, with the one dissenting judge saying the settlement unfairly benefited Facebook and plaintiff attorneys.

In 2007 Facebook launched Beacon, which allowed users to broadcast their Internet activity to friends. If a user rented a movie from Blockbuster, for instance, Facebook would broadcast that transaction to the person's entire network, according to the ruling.

However, Facebook didn't require anyone's affirmative consent to participate in the program, and users soon complained about their private information being transmitted without permission. In the face of complaints and negative publicity, Facebook eventually discontinued the service.

A group of 19 plaintiffs filed a proposed class action in federal court against Facebook and other businesses who participated in Beacon. Facebook soon agreed to settle the case for $9.5 million.

Roughly $3 million of that was set aside for attorney's fees, with the rest going to establish a charitable group focused on online privacy rights.

A subset of plaintiffs objected to the settlement, but in its ruling on Thursday the 9th Circuit said the $9.5 million was not too low.

"A $9.5 million class recovery would be substantial under most circumstances," the court wrote, "and we see nothing about this particular settlement that undermines the district court's conclusion that it was substantial in this case."

Facebook deputy general counsel Colin Stretch said the company was pleased the 9th Circuit found the settlement fair. Plaintiffs' attorney Scott Kamber said he looked forward to the formation of the privacy rights group.

In dissent, 9th Circuit Judge Andrew Kleinfeld said the settlement "perverts the class action into a device for depriving victims of remedies," while enriching the company and plaintiff lawyers.

"Facebook users who had suffered damages from past exposure of their purchases got no money, not a nickel, from the defendants," Kleinfeld wrote.

The case in the 9th Circuit is Ginger McCall vs. Facebook Inc., 10-16380.

(Reporting By Dan Levine; editing by Carol Bishopric)

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