After much anticipation, the Federal Trade Commission announced today that Facebook was to be fined a record-breaking $5 billion for violating the privacy of its users.
It’s the largest fine ever imposed by the FTC against a tech firm, blowing past the previous title-holding $22.5 million fine against Google in 2012.
Which, by the way, also stemmed from privacy issues.
However, as the years went by, privacy concerns continued to simmer beneath the surface of the internet. More fines came, of course, and companies happily paid them.
After all, the fines themselves were quite small. And without any true oversight from regulators, it was better business to simply continue in their dastardly ways, paying the fines as they went.
But that all changed in March of last year, when reports revealed that political consulting firm Cambridge Analytica gained access to user data from roughly 87 million Facebook accounts, prompting an FTC probe shortly thereafter. Regulators wanted to find out if Facebook failed to notify users that their data was being shared with third parties – one of the terms from a prior FTC agreement.
And upon further investigation, it seems Mark Zuckerberg & Co. decided to ignore that provision of the settlement completely.
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“We had a huge amount of material from them like emails documents, like millions of pages,” said FTC Chairman Joe Simons, who stated that testimony from Zuckerberg himself was unnecessary for the investigation.
“So we knew what the problems were, whether he was involved or not was a different thing. And so we knew what the violations were without having to do that.”
And so, with a heavy heart, the FTC felt compelled to send a message in the form of a $5 billion fine, hoping that it would reverberate through the streets of Silicon Valley.
“The magnitude of this penalty resets the baseline for privacy cases—including for any future violation by Facebook—and sends a strong message to every company in America that collects consumers’ data: where the FTC has the authority to seek penalties, it will use that authority aggressively,” wrote the FTC in a statement.
But other members of the commission – Rohit Chopra and Rebecca Kelly Slaughter – didn’t quite feel the same way. To them, the record-setting fine didn’t reflect the true damage of the continued widespread privacy violations.
“While it is difficult in this case to quantify the economic value of the violations to the company, there is good reason to believe $5 billion is a substantial undervaluation,” Slaughter wrote shortly after the announcement.
“The fact that Facebook’s stock value increased with the disclosure of a potential $5 billion penalty may suggest that the market believes that a penalty at this level makes a violation profitable.”
$5 billion in this case is roughly 9% of Facebook’s 2018 revenue. Something that, while painful, is a “haircut” the company can afford.
The real long-term damage comes by way of new restrictions placed on Zuckerberg that limit his ability to influence Facebook. Along with designated compliance officers, he’ll have to submit quarterly certifications to the FTC that verify the company is complying with the new order’s conditions.
But even in that regard, Slaughter believes the FTC may have “under calibrated”, as Facebook leadership didn’t face any direct penalties.
“By far my biggest concern with the terms of the settlement is the release of liability, in particular the commitment that the order resolves ‘any and all claims that Defendant, its officers, and directors, prior to June 12, 2019, violated the Commission’s July 27, 2012 order.”
“I am also uncomfortable with the inclusion of ‘officers and directors’ in the release from ‘any [Section 5] claim known by the FTC.’ I would have preferred to name Mr. Zuckerberg in the complaint and in the order. I disagree with the decision to omit him now, and I strenuously object to the choice to release him and all other executives from any potential liability for their roles to date.”
With FB share prices rising after the fines and new privacy terms were announced, it appears as though Slaughter may be correct. After all, if Facebook stock can absorb the FTC’s largest tech company fine of all time, then will it really discourage future bad behavior?
That’s the company’s ultimate goal; to keep share prices moving higher and higher. It’s worked out swimmingly for them thus far, and until regulators get serious about limiting Zuckerberg’s power, nothing will change.
7 years ago, Facebook ran the exact same play. Pay the fine, keep doing the crime.
7 years from now, they’ll probably do it again. And you know what? They might even receive another record-breaking penalty.
But at that point, it might be too late, as Facebook leadership confirms yet again that they’re above the law.
Which, in all honesty, is possibly the most “anti-consumer” outcome imaginable, courtesy of a spineless Federal Trade Commission.