Bloomberg/David McLaughlin and Daniel Stoller: Facebook $5 Billion U.S. Privacy Settlement Approved by FTC

Bloomberg
Technology
Facebook $5 Billion U.S. Privacy Settlement Approved by FTC
By David McLaughlin
and Daniel Stoller
12 July 2019, 20:03 UTC
Updated on 12 July 2019, 23:24 UTC

    Agreement sparks outcry from lawmakers and privacy advocates
    Settlement stems from Cambridge Analytica data scandal

FTC Votes to Approve Facebook's Privacy Settlement
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U.S. officials approved a record $5 billion privacy settlement with Facebook Inc. to resolve the Cambridge Analytica data scandal, people said, prompting an immediate outcry from lawmakers and privacy advocates who said it didn’t go far enough.

Although details of the settlement with the U.S. Federal Trade Commission weren’t announced, the fine is steep but far from devastating for Facebook. The company, which reported revenue of almost $56 billion in 2018, had set aside $3 billion in anticipation of the fine.

“This reported $5 billion penalty is barely a tap on the wrist, not even a slap,” said Senator Richard Blumenthal, a Connecticut Democrat , who called for a hearing on the agreement. “Such a financial punishment for purposeful, blatant illegality is chump change for a company that makes tens of billions of dollars every year,” Blumenthal said.

The FTC’s settlement was approved by a vote of 3-2, according to two people who asked not to be named because they weren’t authorized to speak publicly about the decision. The agreement still needs approval from the Justice Department.

The resolution caps a probe that opened in March 2018 after news that Cambridge Analytica, a consulting firm hired by President Donald Trump’s campaign, obtained user data from a researcher who created a personality quiz app on the social network.

The settlement is the largest privacy fine in the FTC’s history and also marks the most significant action yet against Facebook over a series of mishaps that have compromised users’ data and sent the company reeling from one crisis to another. The agency’s two Democratic commissioners, Rebecca Kelly Slaughter and Rohit Chopra, voted against it, according to one of the people.

Slaughter, Chopra, Facebook and the FTC declined to comment.

Democratic Senators Ron Wyden of Oregon and Mark Warner of Virginia also criticized the settlement, as did House Antitrust Subcommittee Chairman David Cicilline, a Rhode Island Democrat who is conducting an antitrust investigation of Facebook and other technology giants.

The job of defending the settlement will fall to FTC Chairman Joe Simons, who has tried to avoid split enforcement decisions as head of the agency.

While Facebook had agreed to give its board oversight of its privacy policies, Chief Executive Officer Mark Zuckerberg is the controlling board member with nearly 58% of the voting power. The board also includes Facebook’s other top executive, Chief Operating Officer Sheryl Sandberg. The two already have power over the company’s privacy policies.

Public interest groups including Public Knowledge, Public Citizen and the Open Markets Institute said any deal with the FTC should impose remedies that would rein in Facebook’s data collection practices in addition to a fine.

“Something clearly has to be done to strengthen the data protection practices of that company,” said Marc Rotenberg, president of the Electronic Privacy Information Center, which filed a complaint against Facebook that led to the FTC’s 2011 consent decree with the social-media company that addressed a litany of deceptive practices.

Tech industry group NetChoice praised the fine, saying it would motivate companies to improve their privacy practices.

The Cambridge Analytica incident stems from a personality-quiz app offered to Facebook users by a Cambridge University researcher. About 270,000 people downloaded the app, allowing the researcher to access data about those individuals and their friends. The information was subsequently sold to Cambridge Analytica.

Even as it resolves the FTC privacy inquiry, Facebook is still grappling with regulatory scrutiny on several other fronts -- including the prospect of a new investigation by the FTC’s antitrust section under an agreement with the Justice Department that divided oversight of four of the biggest tech companies. One area of focus is likely to be the company’s acquisitions of the photo-sharing app Instagram and the Whatsapp messaging service.

Elsewhere in the U.S., the Justice Department and the Securities and Exchange Commission opened investigations related to the Cambridge Analytica scandal. Separately, the attorney general for Washington, D.C., has sued the company, claiming it failed to safeguard users’ data. Other state attorneys general are also investigating.

Facebook declined to comment on the status of those probes.

The settlement ranks among the highest at the FTC, which reached a $10 billion settlement with Volkswagen AG in 2016 for deceptive advertising in the emission-cheating scandal involving diesel models. The agency’s previous record fine in a privacy action came in 2012, when Alphabet Inc.’s Google paid $22.5 million to settle claims it misrepresented its privacy assurances to Apple Inc.’s Safari users.

— With assistance by Kurt Wagner, and Naomi Nix

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