August 2, 2019 at 5:00 am ET
Even before details of the $5 billion Facebook fine emerged, lawmakers on both sides decried the deal as a giveaway to the social-network behemoth. Senator and presidential candidate Elizabeth Warren called the penalty a “drop-in-the-bucket” and said the Federal Trade Commission “should break Facebook up, plain and simple.”
Others joined these calls for a higher fine and breaking up Facebook, including at least two Republicans. Sen. Josh Hawley wrote, “To say this was a slap on the wrist for Facebook is too generous,” while Sen. Marsha Blackburn said the fine should have been 10 times larger. The FTC should have gone much further, they argue.
These criticisms are off-base. The settlement, which includes both behavioral requirements and the largest fine ever levied, is in reality a big regulatory win that fundamentally changes the relationship between the government and tech companies. Not only is the fine disproportionate to the purported infraction, but it also sets a troubling precedent for the future since the case on which it is based had significant weaknesses. This record-setting fine allows the agency to pursue and likely extract massive concessions in the future on a flimsy legal basis, and for those that care about the rule of law, that should be a worrisome result.
The argument of these lawmakers is straightforward enough. The Cambridge Analytica scandal in the wake of the 2016 election — in which a fourth-party group was given data on millions of users in an effort to sway their vote — seemingly demonstrated the company’s lack of concern for users’ privacy. By the FTC’s own calculations, the potential fine for Facebook’s failures could have topped tens of billions of dollars. And the fact that Facebook is settling for this amount (after setting aside $3 billion already) indicates that the fine is well within its capacity to absorb. Lawmakers think the FTC could have taken far more out of Facebook.
But the facts of the case counsel against this conclusion.
First, the fine itself is objectively massive. At $5 billion, the fine against Facebook will be the largest fine levied in the FTC’s history, far exceeding the $22.5 million fine for Google in 2012. Since Facebook made $22 billion in profits in 2018, the fine represents about a fifth of its total earnings. Most companies would be put out of business with such a large fine. The $5 billion sanction would also tie for the largest in the world, matching the European Commission’s fine of Google last year.
Second, the fine amount is hardly commensurate with the infringement. Indeed, nowhere in the settlement itself or in the majority opinion is there a clear explanation of what the social media giant did incorrectly. While Facebook has been engaged in some questionable practices in the past, the punishment should fit the crime. The Cambridge Analytica scandal isn’t a $5 billion transgression.
Third, even though the Cambridge Analytica scandal spurred the investigation that led to this fine, the scandal is not clearly a violation of any law or legal agreement. The legal basis for this fine rests on a 2011 consent decree that the FTC signed with Facebook, which required Facebook to provide greater privacy protections and transparency for users.
But as legal scholar Berin Szoka explained in a lengthy analysis of the case, Facebook’s interactions with fourth parties — the topic of the Cambridge Analytica suit — aren’t included in the consent decree. The FTC could have also brought a case against the platform for failing to notify users that their information might become public. But again, Facebook’s policy laid out that “[a]s a general rule, you should assume that if you do not see a sharing icon, the information will be publicly available.” For these reasons, and countless others that Szoka details, the FTC would likely fare poorly in court.
Given the weakness of its case, the FTC settled with Facebook for significantly less than the maximum possible damages — and Facebook rationally accepted the fine rather than risk paying far more after a trial. Settling also allowed the FTC to preserve its power: Going to trial with a case against Facebook would have risked a ruling that that could diminish the FTC’s broad authority. But the result is that the FTC both expands its powers and demonstrates that it is capable of leveraging flimsy legal arguments to extract huge fines.
Because there isn’t much settled law in this space, the FTC has limited constraints from the courts, and a $5 billion fine only extends that power. Some want the agency to act more aggressively. But what’s more aggressive than a historic fine and a rash of new controls without a clear explanation of how consumers were harmed — all creating a precedent for similar overreaches in the future?
Will Rinehart is the director of Technology and Innovation Policy at the American Action Forum.
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