Facebook's defense of $5 billion penalty stirs suspicions about FTC settlement

30 January 2020 4:02pm
Facebook sign

27 January 2020. By Dave Perera.

Facebook's assertion that it will voluntarily pay the US Federal Trade Commission far more than the consumer protection agency could have obtained through litigation over privacy violations may, ironically, bolster critics' argument against the settlement.

In a Friday court filing opposing an attempt by consumer advocacy groups to annul the July 2019 settlement that ended a 10-month FTC investigation into Facebook, the social media giant sought to dismiss criticism by characterizing its anticipated $5 billion civil penalty payout as "orders of magnitude greater than what the FTC could reasonably have achieved at trial."

Were the FTC to take Facebook to court, as Democratic commissioners Rebecca Slaughter and Rohit Chopra have urged the agency to do, the government could walk away with less than $5 billion. Friday's filing by Facebook attorneys makes clear how much less, at least in the social media giant's assessment.

FTC statutory authority allows the agency to assess penalties worth no more than $43,280 per violation. Facebook attorneys told US District Judge Timothy Kelly they're confident that during trial they could keep total fines down to a "per-day" calculation. That is, $43,280 per day since the FTC signed its first, binding privacy practice agreement with Facebook in 2012.

Under that framework, total fines achievable in court would amount to somewhere in the low hundreds of millions of dollars. If the court case were to last through the end of 2023, fines calculated on a per-day basis would amount to $180 million.

In the unlikely event litigation dragged through the rest of this decade, fines would still come in at the relative bargain price of $290 million.

That more-than-ten-fold disparity between a payout in court, as opposed to a voluntary handover of billions of dollars, has for months now provoked suspicions that the social media giant used its largess to buy its way out of a federal investigation. Friday's filing only bolsters that suspicion.

"The penalty is large because there were so many possible violations and many of those possible violations aren't substantively addressed" in the FTC settlement, said Alan Butler, general counsel for the Electronic Privacy Information Center, one of the groups urging the DC federal court to reject the settlement.

In essence, Facebook paid the FTC to make the investigation stop, critics charge. For additional support, they point to the settlement's broad release of Facebook from new investigations for privacy violations it may have committed before June 12, 2019. That's what made Facebook willing to fork over billions, they say.

"Facebook got a get-out-of-jail card," said Megan Gray, a former FTC enforcement lawyer who was the lead federal attorney in the agency's 2012 privacy case against Google. The release is unprecedented, she and others told MLex. Previously, when the agency released a company from additional investigation, it was only for violations specifically resolved by the settlement. "I challenge anyone to show me any FTC case that gives a release of known and unknown claims," she said.

In a list of more than 50 questions sent to FTC Chairman Joseph Simons this month, Representative David Cicilline likewise questioned the "extremely broad release" of legal claims against Facebook.

"What other Commission orders have contained a comparably broad release of known and unknown order violation claims, as well as all known Section 5 claims?" the Rhode Island Democrat and chairman of the House Judiciary antitrust subcommittee asked in a follow-up question, referring to Section 5 of the FTC Act.

Facebook spokesman Andy Stone said the company has no comment.

An agency spokesman pointed to remarks made by Simons and the two other Republican commissioners when announcing the Facebook settlement, who called the record-breaking amount "an important deterrent to future order violations."