Federal Trade Commission to settle complaint with Facebook over privacy breaches for $5 billion.

July 14, 2019 |

Although the Federal Trade Commission (“FTC”) has not made a formal announcement the detailed reporting of the deliberations and voting by FTC Commissioners in favour ( 3-2) make it almost certain that once the civil division of the Justice Department approves the settlement, an almost certainty, an announcement will be formally made and Facebook will be liable to pay $5 billion. The Wall Street Journal broke the story with FTC Approves Roughly $5 Billion Facebook Settlement

Wired has undertaken a comprehensive report of the saga, which started with the FTC opening its investigation in March 2018, a week after the Cambridge Analytica scandal broke.  

The problem Facebook faces legally is that in 2011 it entered into an 20 year consent decree, being an undertaking not to share data with third parties without consent.  I posted on the settlement in 2011 here.  The use and abuse of personal information by Cambridge Analytica, a third party, is a clear breach of the consent decree.

Even though the fine is the biggest in FTC history there are no shortage of critics who feel that this is a good result for Facebook.  As with many data breaches if not properly handled the consequences are difficult to predict.  As the Wall Street Journal, in FTC’s $5 Billion Fine Alone Won’t Get Facebook Out of Crosshairs, reports the growing momentum to impose regulation on social media sites.

The initial Wall Street Journal article provides:

The Federal Trade Commission has endorsed a roughly $5 billion settlement with Facebook Inc. over a long-running probe into the tech giant’s privacy missteps, according to people familiar with the matter.

FTC commissioners this past week voted 3-2 in favor of the agreement, with the Republican majority backing the pact while Democratic commissioners objected, the people said. The matter has been moved to the Justice Department’s civil division and it is unclear how long it will take to finalize, one of the people said. Justice Department reviews are part of FTC procedure but typically don’t change the outcome of a decision by the commission.

A settlement is expected to tighten government restrictions on how Facebook treats user privacy. The additional terms of the settlement couldn’t immediately be learned.

An FTC spokeswoman declined to comment, as did a Facebook spokesman.

Facebook said in April that to settle the probe it was expecting to pay up to $5 billion. A resolution was bogged down by the party-line split on the FTC, with the Democrats pushing for tougher oversight of the social-media giant.

One point of disagreement was the extent to which Facebook Chief Executive Officer Mark Zuckerberg should be held responsible or be made accountable for future missteps.

The FTC investigation began more than a year ago after reports that personal data of tens of millions of Facebook users improperly wound up in the hands of Cambridge Analytica, a data firm that worked on President Trump’s 2016 campaign. The FTC investigation centered on whether that lapse violated a 2012 consent decree with the agency under which Facebook agreed to better protect user privacy.

Cambridge Analytica shut down in 2018 after the allegations surrounding Facebook data and other questions about its political tactics. The company had won political consulting work in the U.S. by promising to use data to profile and influence voters with political messages. It contracted for several Republican presidential candidates ahead of the 2016 election, including Mr. Trump’s campaign.

The user data at issue in the Facebook case reached beyond those who downloaded the app to include about 30 different data points about those people’s Facebook friends

Since the Cambridge Analytica affair, other privacy missteps have come to light, adding to Facebook’s headaches.

The settlement would easily exceed the previous record penalty for violating an FTC order, a $22.5 million fine levied against Google Inc. in 2012. The commission has limited powers to impose fines for first-time privacy violations but has broad latitude to sanction repeat offenders.

Facebook shares gained 1.8% on Friday, even though the reported settlement amount was $2 billion more than the company has reserved for the settlement. Facebook’s profit for the first quarter before accounting for the penalty was slightly more than $5 billion.

After Facebook set aside the funds, some Democrats criticized the amount as too little, and the party-line decision this past week could expose Republicans to further criticism. The FTC has sometimes been attacked as being toothless on privacy.

Facebook and other large tech companies are under an increasingly harsh spotlight in Washington, D.C., including at a “social media summit” at the White House on Thursday in which President Trump repeatedly bashed Silicon Valley as being unfair to conservatives. Facebook wasn’t invited to attend, nor were other tech companies. They have previously said they police their platforms without regard to political ideology.

Facebook also faces possible scrutiny of its competitive practices. The Wall Street Journal reported last month that the Justice Department is gearing up for an antitrust probe of Alphabet Inc. ’s Google and has authority to look into Apple Inc., while the FTC has taken jurisdiction for possible antitrust probes of Facebook and Amazon.com Inc.

Facebook is also preparing for congressional hearings in the coming week related to its proposed cryptocurrency Libra, which has drawn skepticism from President Trump and many regulators.

The privacy settlement comes as the FTC has faced mounting political pressure to take a tougher line against Facebook and potentially other tech companies. European enforcers have been seen as the global top cop on the tech beat.

With the dollar amount approved this week, the FTC obtained a financial penalty higher than what European Union could have sought under its privacy law.

Facebook’s first FTC settlement, finalized in 2012, resolved commission allegations that the company repeatedly broke its privacy promises to the site’s users, including by sharing their data with advertisers and other third parties.

For example, Facebook-based apps like a television-show quiz could find a user’s relationship status or photos, the FTC said at the time—even though Facebook said it wouldn’t share unnecessary personal details with apps. Facebook settled the case in part by promising not to further deceive users.

In 2017, Facebook said a personality-prediction app had gathered data from tens of millions of users and shared the information with Cambridge Analytica. The FTC reopened the privacy case with Facebook, this time armed with its significant power to punish repeat offenders.

The big-ticket fine is unlikely to satisfy Facebook’s staunchest critics, much as multibillion-dollar penalties against big banks after the 2008 financial crisis did little to reduce anger at Wall Street.

Lawmakers in both parties are working on new privacy rules for large tech firms, while many Democratic presidential candidates want to investigate Facebook’s market power. Sen. Elizabeth Warren (D., Mass.) is calling to break up the company, a position recently backed by Facebook co-founder Chris Hughes.

A number of Democratic lawmakers assailed the pact on Friday. Rep. David Cicilline (D., R.I.), chairman of the House antitrust subcommittee, tweeted that the FTC “just gave Facebook a Christmas present five months early.”



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