Google has agreed to pay $8.5 million to settle a class action lawsuit claiming it violated the privacy of Gmail users when it released Google Buzz, a Gmail bolt-on that turned the email service into a Tweetbookish social networking tool.

The suit in question consolidates several civil cases filed against the company over Google Buzz, which was rolled out to all Gmail users in February – before it had been publicly tested. By default, Buzz automatically exposed users' most frequent Gmail contacts to the public internet. You did have the option of hiding the list from the public view, but many complained that the checkbox that let you do so was less than prominently displayed.

Within days, Google agreed to move the checkbox to a more prominent position, and it rejiggered the way it handles user contacts. But this didn't prevent a spate of lawsuits.

In settling the consolidated case, Google will create an $8.5 million fund that will be used to distribute awards to organizations focused on internet privacy or privacy education. It will also be used to pay the lawyers and class representatives – i.e. the people who sued.

Clearly, Google is desperate to challenge the Facebooks of the world with a widely used social networking service of its own, which would expand its its efforts to collect data on users that can then be used to target ads. But like Orkut before it, Buzz hasn't exactly achieved that goal – just judging from anecdotal evidence. Google has not said, however, how many people actually use the service. ®