The lawsuit, filed in August of last year, alleged that Facebook and its Beacon affiliates like Blockbuster and Overstock.com violated a series of laws, including the Electronic Communications Privacy Act, the Video Privacy Protection Act, the California Consumer Legal Remedies Act and the California Computer Crime Law.

The proposed settlement, announced late on Friday, calls not only for Facebook to discontinue Beacon, but also back the creation of an independent foundation devoted to promoting online privacy, safety and security. The money for the foundation will come from a US$9.5 million settlement fund.

"We learned a great deal from the Beacon experience. For one, it was underscored how critical it is to provide extensive user control over how information is shared. We also learned how to effectively communicate changes that we make to the user experience," said Barry Schnitt, Facebook's Director of Policy Communications, in a statement.

Facebook is looking forward to the creation of the foundation, which the company expects will team up with existing safety and privacy organizations, Schnitt said.

The settlement agreement needs to be approved by the U.S. District Court for the Northern District of California, San Jose Division, where the lawsuit was filed.