Facebook to be fined $ 5bn

US regulators have approved a forfeit of $5bn on Facebook to settle an investigation into data privacy violations. Would this fine deter Facebook? What are the implication of other restrictions and government oversight that might follow suit?

Background  

Cambridge Analytica was a British political consulting firm that had access to the data of millions of users, some of which was allegedly used to psychologically profile US voters and target them with material to assist in Donald Trump's 2016 presidential campaign.  

The data was acquired via a quiz, which invited users to find out their personality type. As was common with apps and games at that time, it was designed to harvest not only the user data of the person taking part in the quiz but also the data of their friends.

Facebook has said it believes the data of up to 87 million users was improperly shared with the now-defunct consultancy. 

Analysis  

The Federal Trade Commission (FTC), America’s consumer protection watchdog, has agreed to take the social media giant to task, over its botched handling of the breach, which saw the personal information of tens of millions of users inappropriately collected.

FTC began investigating Facebook in March 2018, following reports that Cambridge Analytica had accessed the data of tens of millions of its users. The investigation focused on whether Facebook had violated a 2011 agreement under which it was required to notify users and gain "express consent" to share their data. 

The $5bn fine was approved by the FTC in a 3-2 vote which broke along party lines, with Republican commissioners in favour and Democrats opposed. 

The New York Times reported that the Democrats wanted stricter limits on the firm, while other Democrats have criticised the fine as inadequate. The fine will now be reviewed by the US Department of Justice (DoJ) before an official announcement is made. If confirmed, it would be the largest fine ever levied by the FTC on a tech company. However, the amount falls in line with estimates by Facebook, which earlier this year said it was expecting a fine of up to $5bn. Investors responded positively to the news, pushing Facebook shares up 1.8%. 

Counterpoint  

Critics argue that the changes required of Facebook are not substantial enough, and the fine will hardly make a dent in Facebook’s bank account. The company had more than $15bn in revenue in the first three months of 2019. 

“This isn’t a fine, it’s a favour to Facebook, a parking ticket which will clear them to conduct more illegal and invasive surveillance,” said Matt Stoller, a fellow at the Open Markets Institute who specializes in monopoly power. “Congress should start defunding the FTC and move the money to state enforcers like Karl Racine who believe in enforcing the law,” he added, referring to the attorney general of Washington DC, who is currently pursuing a lawsuit against Facebook over the Cambridge Analytica case.

Assessment  

  • Given Facebook’s frequent privacy violations, it is important that fundamental structural reforms are required. We feel that with the FTC either unable or unwilling to put in place reasonable protections to ensure that user privacy and data are protected, it’s pertinent for Congress to act.
  • We believe that the rise in market price is indirect, yet compelling evidence that many Facebook users are less concerned with flaws in the company’s business model. We feel that Facebook’s platforms including Instagram will continue to attract and retain users in the months and years ahead, notwithstanding public knowledge of its allegedly inadequate privacy policies.
  • We also feel that Facebook is a networked firm whose value to users depends on the number of other like-minded individuals accessible on the platform. Breaking it into smaller companies would bring down its user value.
  • The real worry for Facebook will be restrictions that might come from other investigations which span the globe - from the European Union, Germany, Belgium and Canada.

 

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