Facebook’s $5 billion settlement with the Federal Trade Commission this summer smashed records: the FTC had never before fined any company such a hefty amount. But even though critics immediately lambasted the deal as a comparative slap on the wrist for Facebook, which earned about $56 billion in revenue in 2018, newly released documents show that the company was working hard to avoid any penalty at all—and its arguments then are just a prelude to defenses it may mount now, as dozens of state, federal, and international probes pile up around it.
In the memo, Facebook argued that the fine is unconstitutional, saying that it violates both the due process clause as well as the excessive fines clause of the Eighth Amendment. “No court would impose such a plainly excessive and disproportionate penalty,” the company said. “The proposed penalty is wildly disproportionate to any harm suffered.”
“Facebook is prepared to prove with expert analysis that, in fact, no consumer harm occurred as a result of the alleged order violations,” the company continued, saying that it “did not profit from the alleged violations.” Instead, Facebook argued, its fine, if any, should be more in line with the $22.5 million Google paid in 2012 following allegations it installed tracking cookies on the Safari browser by circumventing default user settings.
The harms suffered
The $5 billion settlement addressed several different allegations. Primary among them: Facebook had been through this before. The company and the FTC reached a settlement in 2011 requiring Facebook privacy settings and information sharing to be “opt-in” and mandating 20 years of regular privacy audits for the company.
The 2019 settlement found those updated settings, and their outcomes, to be misleading. “At least tens of millions of American users relied on Facebook’s deceptive privacy settings and statements to restrict the sharing of their information,” the complaint said, “When, in fact, third-party developers could access and collect their data through their friends’ use of third-party developers’ apps.”
The most notorious of those third parties was Cambridge Analytica, which used the Facebook API not only to collect data from the 270,000 individuals who used its personality-quiz app but also from all those users’ friends. Facebook said in 2018 that up to 87 million users may have had their data “improperly shared” with Cambridge Analytica which, in turn, shared it with the Trump presidential campaign.
Had Cambridge Analytica been the only instance in which Facebook users’ privacy was violated in unexpected ways, perhaps the FTC would have been more lenient. But the commission also said Facebook violated the 2011 order by “misrepresenting” consumers’ ability to opt out of facial recognition, by storing user passwords without encryption, and by using phone numbers provided for two-factor authentication for advertising purposes without permission.
The privacy issues with third-party apps did not magically end with either the nominal dissolution of Cambridge Analytica or the FTC settlement. As recently as September 20, Facebook suspended tens of thousands of apps from its platform after they were found to be violating users’ privacy. The company also filed suit against developers who allegedly used quiz apps to scrape users’ data.
Facebook’s warmup routine
The entire Cambridge Analytica scandal—all the congressional hearings and testimony, the media reports, the $5 billion settlement—may pale in scope compared to the regulatory fight that Facebook faces today. In the United States alone, Facebook is the current target of wide-reaching antitrust investigations being conducted by Congress, the FTC, the Justice Department, and several states.
Many of those probes focus on Facebook’s history of acquiring former competitors such as Instagram and WhatsApp, and critics are increasingly calling for the company to be broken back up along those lines. Most notable among those voices is Sen. Elizabeth Warren (D-Mass.), who in March announced a plan for doing just that as one of the policy planks of her 2020 campaign. Facebook and its CEO Mark Zuckerberg, as you might imagine, are not thrilled about the idea.
The Verge today published leaked audio it obtained of Zuckerberg discussing the potential for future regulatory action at a pair of employee meetings held in July.
“I’m certainly more worried that someone is going to to break up our company,” Zuckerberg said. “There might be a political movement where people are angry at the tech companies, or are worried about concentration, or worried about different issues and worried that they’re not being handled well.”
“If [Warren] gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge,” he prophesied. “And does that still suck for us? Yeah. I mean, I don’t want to have a major lawsuit against our own government… But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat, and you fight.”
The fight, he argued, would be entirely justified because breaking up Facebook wouldn’t help anything. “Breaking up these companies, whether it’s Facebook or Google or Amazon, is not actually going to solve the issues,” Zuckerberg told employees. “It doesn’t make election interference less likely. It makes it more likely because now the companies can’t coordinate and work together.”
Zuckerberg concluded his thoughts on the matter by saying:
So yes, I think that the direction of the discussion is concerning. I at least believe, I think, there are real issues. I don’t think that the antitrust remedies are going to solve them. But I understand that if we don’t help address those issues and help put in place a regulatory framework where people feel like there’s real accountability and the government can govern our sector, then yeah, people are just going to keep on getting angrier and angrier. And they’re going to demand more extreme measures, and, eventually, people just say, “Screw it, take a hammer to the whole thing.” And that’s when the rule of law comes in, and I’m very grateful that we have it.