Jul 13, 2019 - Technology

FTC's Facebook fine draws fire

A man walks by reporters and TV cameras

Facebook CEO Mark Zuckerberg. Photo: Artur Widak/NurPhoto via Getty Images

News that the Federal Trade Commission has approved a roughly $5 billion fine against Facebook for privacy violations prompted instant outcry from some critics and lawmakers.

Why it matters: The FTC decision could have consequences for Facebook's billions of users — and frame the next stage of a global debate over how to regulate consumer privacy. A consensus that the settlement is weak would provide more ammo for proponents of new privacy laws — whereas an assessment that the penalties are serious would strengthen the hands of those who oppose new regulation.

Flashback: It has been 474 days since the FTC confirmed that it was investigating the company, following revelations that a researcher associated with consultancy Cambridge Analytica had swept up Facebook user data in a digital dragnet.

  • Critics charged that Facebook had violated a previous 2012 settlement with the FTC that required it to take more care when it came to user privacy, allowing the agency to levy greater penalties.
  • Now, the agency's three-commissioner Republican majority has reportedly signed off on a roughly $5 billion settlement, with its two Democrats voting against the deal.
  • The Department of Justice has to review the settlement before it becomes final.

What they're saying: The race to spin the potential settlement started as soon as the news broke.

Capitol Hill Democrats and advocates of aggressive new privacy regulation panned the deal.

  • Sen. Richard Blumenthal (D-Conn.) called the $5 billion fine, the largest in FTC history, a "tap on the wrist" for the mammoth Facebook.
  • Presidential candidate Sen. Elizabeth Warren (D-Mass.) said the settlement was a "victory for Facebook."
  • Sen. Mark Warner (D-Va.) said that with "the FTC either unable or unwilling to put in place reasonable guardrails to ensure that user privacy and data are protected, it’s time for Congress to act.”

Industry groups and allies praised it.

  • "The FTC’s Facebook fine is unprecedented and will undoubtedly motivate better privacy practices by all businesses," said Carl Szabo, the general counsel of trade association NetChoice, in a statement.

What we don't know: The exact terms of the settlement, which is expected to put restrictions of some kind on Facebook's behavior that go beyond just the financial penalty.

  • Both the FTC and Facebook declined to comment.

Facebook's stock popped on the news, suggesting the markets didn't view it as a major blow to the social giant.

  • The company itself estimated that the fine in the case could be as high as $5 billion earlier this year.

Yes, but: Even with the FTC case settled, plenty of challenges will confront Facebook in the United States and abroad. That includes scrutiny from state attorneys general, the possibility of future antitrust action and a new tax on its revenues in France that has drawn scrutiny from the Trump administration.

The big picture: The fine has been hanging over the privacy debate in Washington for months, raising the question of whether regulators have enough power to rein in companies like Facebook.

  • Advocates for strong privacy laws have said the FTC should be able to pursue more significant penalties against companies on a first offense, for example, or have a broader ambit to write regulations.

But momentum has seriously slowed for a new national law.

  • Last month, a top lawmaker on the Senate Commerce Committee backed away from a bipartisan panel that was seen as one serious effort to negotiate a privacy bill with broad support.

The bottom line: The approved settlement may be record-setting, but it looks less imposing in the context of Facebook's revenue, which was $15 billion for the most recently reported quarter. Any teeth in the accord are more likely to lie in restrictions placed on Facebook's behavior — and whether the deal lights a fire under lawmakers working on the privacy issue.

Go deeper: Our guide to reading a settlement when it's finalized and released

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