Why a $5 billion fine is actually a win for Facebook

Kamran Jebreili/AP/Shutterstock
ByTebany Yune
Originally Published: 

The FTC and Facebook have finally reached a settlement over ongoing privacy violations and the company's involvement in the Cambridge Analytica scandal. In the settlement, Facebook agreed to pay the FTC $5 billion for violating a prior privacy settlement and also establish an independent privacy committee to oversee its activity and services, while also creating tools to monitor any user data that goes to third-parties. But critics are concerned the new action will do little to regulate the tech giant.

The penalty is one of the biggest fines the FTC has ever imposed on a tech company. In a statement made today, the FTC proudly noted that the fine is "over 20 times greater than the largest GDPR fine to date" and "one of the largest civil penalties in U.S. history." The FTC hopes the penalty and privacy changes will force Facebook into acting with "greater corporate accountability, more rigorous compliance monitoring, and increased transparency."

The settlement could indicate the start of a wave of increased scrutiny on large tech corporations. The Department of Justice announced on Tuesday, July 23, that it would open an antitrust review against tech conglomerates to take a closer look at whether they have acted maliciously to reduce competition within their industries. Google, Facebook, and Amazon are among the companies that are expected to be investigated.

This latest settlement comes after the 2018 scandal, when investigators at news organizations reported Cambridge Analytica's harvesting and misuse of user data from Facebook. The scandal revealed that Cambridge Analytica was sending out surveys to Facebook users, requesting consent to use their information for academic research. However, the company took advantage of Facebook's design to harvest information from the friends of those users without consent — resulting in the collection of personal data from over 50 million people within the social network.

The information was then used to create psychological profiles that were sold to political campaigns. Ted Cruz's team reportedly paid $750,000 to Cambridge Analytica for the data under the mistaken belief that it was obtained legitimately. The New York Times also found that the data from the breach could have been used by President Donald Trump's consultants and the Brexit campaign.

Facebook, Inc.

Facebook has stated that the requirements of the settlement will essentially create a restructuring within the company that "will place additional responsibility on people building our products at every level of the company. It will mark a sharper turn toward privacy, on a different scale than anything we’ve done in the past."

At the same time, Facebook has also settled an ongoing investigation by the SEC for failing to disclose the Cambridge Analytica data breach when they first heard of the problem back in 2015. Facebook has agreed to pay a $100 million fine as a penalty.

Andrew Harnik/AP/Shutterstock

But while that all may sound like a lot of money, critics believe the FTC's settlement doesn't do enough to punish Facebook for its privacy violations. Two out of five FTC members disapproved the settlement, concerned that it still left members of the public vulnerable to privacy risks. In a statement made by dissenting commissioner Rohit Chopra, he said he felt the requirements were inadequate and did not "include any restrictions on the company’s mass surveillance or advertising tactics." Chopra believed it left too much up to Facebook to decide what was best for itself.

The other dissenting commissioner, Rebecca Kelly Slaughter, believes the case should have gone to court rather than settled. In her written dissent, she pointed out that Facebook has violated similar agreements in the past and that this one does nothing to change the company's behavior.

"[T]here was extremely compelling evidence of a series of significant, substantial order violations and law violations," Slaughter wrote. "I believe there was sufficient evidence to name Mr. Zuckerberg in a lawsuit."

Others, such as the editor-in-chief of The Verge, Nilay Patel, agreed that this seems like a slap on the wrist for Facebook. "The largest FTC fine in the history of the country represents basically a month of Facebook’s revenue," he lamented, "and the company did such a good job of telegraphing it to investors that the stock price went up."

Facebook indeed prepared its investors very well, informing them back in April that the company expected to pay $3-$5 billion and had already set aside the money in preparation. The penalty therefore came as no surprise to investors, who — as of this writing, ten minutes before the stock market closes for today — have actually increased the value of Facebook's stock by 1.06 percent.

U.S. Senator and 2020 presidential candidate Elizabeth Warren also agreed with the dissent. On Twitter, she called the settlement a "victory for Facebook" and insisted that the FTC should break up the enormous company. Warren has been vocal about her proposal to split up big tech companies and undo anti-competitive mergers to limit their power and encourage competition.

However, most of the FTC considers this a victory and is already moving on to its next target — Cambridge Analytica. In a separate statement today, the FTC announced a lawsuit against Cambridge Analytica for its role in the data breach. As part of the same announcement, the commission declared that it has reached a settlement with Cambridge Analytica's former CEO and the app developer for their roles in lying to users about the data collection. The company at large has yet to settle with the FTC due to filing for bankruptcy after the data scandal.

These actions against the companies reflect a growing concern among the public, lawmakers, and regulators about the power held by big tech corporations. Governments around the world have been spurred by an urgent need for regulation as companies like Amazon and Facebook continue to expand their reach into technology such as facial recognition and cryptocurrency. Depending on the Department of Justice's antitrust findings, there could be additional fines and regulations to curb their power. Still, without actually breaking up the companies, critics fear it may be too little, too late.