The Federal Trade Commission this week announced its approval of a US$5 billion settlement with Facebook, ending a long-running investigation into the company’s privacy practices. The commission’s 3-2 vote was along party lines.
The United States Department of Justice must finalize the settlement before the matter is closed. The DoJ’s action will end the investigation that began early last year, when Facebook entered the spotlight for numerous privacy violations, andpossible violation of a 2011 consent agreement with the FTC.
Facebook on Notice
The 2011 settlement required Facebook to establish and maintaina more comprehensive privacy program, and to obtain theexpress consent from users before the sharing their data withthird parties.
However, it isn’t just the $5 billion fine that Facebook faces. Thecompany also must document every decision it makes involvinguser data before it can introduce any new products.
It also will have to monitor any third-party apps on itsplatform and ensure they do nottap or otherwise obtain consumer data. The company’sexecutives are on warning that they must do a better job ofprotecting user privacy.
Facebook and the FTC have not commented publicly on the issue, anddetails and terms of the restrictions have not been disclosed.
Small Change for Facebook
The $5 billion fine — as well as the changes that Facebook will needto make to its policies — may seem harsh in comparison topast FTC judgments. The FTC in 2012 imposed a $22.5 million against Google for misrepresenting how Apple’s Safari Internet browser served targeted ads.
However, critics have argued that Facebook “got off light.” While $5billion is the largest fine the federal government ever has imposed on a technology firm, is still small change to Facebook. The company admitted in its April earnings report that it expected to pay as much as $5 billion to settle the investigation.
“The FTC just gave Facebook a Christmas present five months early,”said House Antitrust Subcommittee Chairman David N. Cicilline, D-R.I.
“It’s very disappointing that such an enormously powerful company thatengaged in such serious misconduct is getting a slap on the wrist,”he added. “This fine is a fraction of Facebook’s annualrevenue. It won’t make them think twice about their responsibility toprotect user data.”
Critics argued that even a fine in the billions of dollarswasn’t a high enough price to pay for Facebook’s privacy violations, giventhat its first-quarter revenue for this year was $15 billion, and that it reported having more than $40 billion cash reserves.
“A $5 billion fine is pocket change for Facebook,” noted Roger Entner,principal analyst at Recon Analytics.
“One can clearly see that because Facebook preannounced the fine bysetting aside $5 billion for the FTC investigation,” he told the E-Commerce Times.
“The fine emerges as an insignificant penalty for the company, much inthe same way that antitrust fines in Europe had little impact onGoogle,” noted Greg Sterling, vice president of strategy and insightsat Local Search Association.
“Unless fines are considerably higher, they lack the deterrent effectthey are supposed to have,” he told the E-Commerce Times. “Whilethere is a small but vocal segment of consumer advocates who areoutraged by the privacy violations, judging from their behavior,consumers are still oblivious to the privacy violations or haveresigned themselves to it.”
Normally, receiving a fine even in the millions of dollars would beseen as bad news by investors, but following the announcement of the$5 billion fine Facebook’s stock price actually went up.
“Facebook informed its shareholders several weeks ago that the finewas coming and it was already factored into the share price when theFTC made its announcement last week,” explained Recon Analytics’Entner.
“Accordingly the market didn’t react,” he added. “Generally speaking,financial penalties indicate the seriousness of the regulators, butthey ultimately have a limited impact on these massive Internetcompanies.”