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Google has settled a privacy lawsuit filed by some users of its social networking experiment, Buzz.

Buzz angered many when it was launched because it automatically enrolled all Gmail users without seeking prior permission.

Rather than offer compensation to individual users of Gmail, the search giant is setting up a privacy fund.

The $8.5m (£5.2m) fund will support "organisations working on privacy education and policy on the web".

Illicit affair

Buzz was launched as an application within Gmail in February.

It allowed users to post status updates, share content and read and comment on friends' posts.

But it also gave users a ready-made circle of friends based on the people they most frequently e-mailed.

This list could automatically be made public, which privacy experts said could be a huge problem for journalists, businesses or people having an illicit affair.

Following anger from users, Google made changes and apologised for insufficient testing of the service.

Part of the legal settlement required Google to e-mail Gmail users in the US to inform them of the development.

In the e-mail Google explained that the settlement applied to all US Gmail users.

It was keen to clarify that they would not be getting any money.

"Just to be clear, this is not a settlement in which people who use Gmail can file to receive compensation.

As well as the privacy fund, Google will "do more to educate people about privacy controls specific to Buzz".

Paul Ducklin, head of technology at security firm Sophos thinks that the privacy fund could kick-start a more vocal debate about online privacy.

"I'll be hoping to hear more long-term background noise being made by privacy lobby groups to remind web users that what is touted as free often comes at great cost," .

People signing up to free cloud-based social networking sites and web-based e-mail services are actually populating "data-bases from which they make revenue", he said.

"You're really agreeing to sell those organisations the right to accumulate, index, commercialise, and in some cases sell on to third parties, information about who you are, what you do, when you do it, and how you choose to talk about it online," he said.