Facebook Inc has agreed to pay a $5bn fine to settle a United States Federal Trade Commission (FTC) probe into the company's handling of user information. The settlement - the largest ever imposed on a company for violating consumer privacy - amounts to less than 10 percent of Facebook's revenue last year, but requires CEO Mark Zuckerberg to be more directly accountable for ensuring compliance with the FTC-mandated privacy programme.
Why was the FTC concerned with Facebook?
The FTC, a regulatory agency responsible for protecting US consumers, has been investigating the social media company's handling of user data. The commission was specifically probing Facebook's inappropriate sharing of user information for 87 million people with UK-based political consulting firm Cambridge Analytica (CA), which closed in 2018.
How bad was the Cambridge Analytica scandal?
The inquiry hinged on whether Facebook violated a 2011 consent agreement with the FTC to prevent privacy violations. CA was a data mining and strategic communications company backed by wealthy conservative donors. The firm acquired data on Facebook users from a third-party quiz app developer, in violation of Facebook's terms of service because users had not given CA permission to access their data. CA performed audience segmentation techniques and "psychographic analysis" to determine political preferences and try to influence voters.
What does the settlement involve?
The deal includes fresh restrictions on Facebook imposed by the federal government and regulatory oversight of how the company deals with user privacy. A new board-level privacy committee will facilitate compliance by company executives, complementing an internal team that already vets new products. Facebook also agreed to continue privacy evaluations by PricewaterhouseCoopers LLP, which in 2017 had concluded that Facebook privacy controls were adequate. The settlement also indicates that company executives will be personally liable for future privacy lapses.
Is the fee sufficient to rein in Facebook?
Although the $5bn amount is the largest civil penalty ever incurred with the FTC, some members of the US Congress have criticised the figure. Facebook saw $22.1bn in net income last year, on $55.8bn in revenue. Senator Marsha Blackburn, a Republican from Tennessee, suggested that the fine should actually be $50bn - echoing an opinion held by many Democrats as well. But a judge still must approve the deal.
Meanwhile, Facebook's bottom line remains robust, as earnings growth has been strong. Quarterly earnings announced later on Wednesday showed that the company made $2.6bn in net income off revenue of $16.9bn in the second quarter.
What other political problems plague the company?
Even though the settlement puts to bed a serious liability for Facebook, the Menlo Park, California-based social network has other regulatory headaches. Most recently, members of the administration of President Donald Trump and Congressional representatives from both sides of the aisle have criticised Facebook's plans for the Libra cryptocurrency. They fear the digital coin could be used for money laundering.
Are there antitrust concerns as well?
The FTC and the US Department of Justice are broadly investigating the status of competition amongst the biggest US technology and social media firms. Senator Elizabeth Warren, a Democrat from Massachusetts who is running for US president, has called for Facebook to spin off Instagram, purchased in 2012, and WhatsApp, bought in 2014. Facebook co-founder Chris Hughes has joined in the chorus of critical voices.
A wide-ranging antitrust review was initiated recently by the Justice Department - coordinated with Deputy Attorney General Jeffrey Rosen - to see whether tech firms are stifling competition. While the Justice Department is looking into monopolisation tactics at Alphabet's Google and Apple, the FTC is looking into Facebook and Amazon. But those arrangements are neither open-ended nor mutually exclusive.
Should other US firms be worried?
In the near future, the FTC is expected to announce a settlement with Alphabet's YouTube division over children's privacy issues. The FTC also recently announced a settlement with Equifax Inc over a massive data breach involving personal information for 150 million people. But US regulators have a ways to go to reach the level of scrutiny exercised by their European Union counterparts.
What does this mean for privacy?
The Electronic Privacy Information Center has called for the FTC to force Facebook to stop data collection on non-Facebook users. However, the FTC itself has been labeled as lax in privacy enforcement, raising questions about whether a different agency might take over its responsibilities. Meanwhile, the FTC has been pursuing additional funding from Congress, as some legislators say the agency's resources are lacking. Either way, many other companies will be reviewing the details of the Facebook settlement to see if they also need to implement changes.
How does Facebook's data policy look?
"We collect the content, communications and other information you provide when you use our Products, including when you sign up for an account, create or share content, and message or communicate with others," says the company's policy. "When you choose to use third-party apps, websites, or other services that use, or are integrated with, our Products, they can receive information about what you post or share," the policy continues.
Will Facebook's power be curbed further?
Despite settling with the FTC, Facebook may continue to be in legislators' crosshairs - as many believe Facebook's behaviour needs to be modified more significantly. The two Democratic commissioners at the FTC thought the settlement was insufficiently tough. Yet there are doubts whether the FTC would have been able to win in court through litigation against Facebook if the matter had not come to a settlement.
Are Congress and Trump stepping in?
Representative David Cicilline, the Democratic Congressman from Rhode Island who chairs the House Antitrust Subcommittee, sent letters to Facebook, Amazon and Google requesting more testimony - after their representatives appeared July 16 at a hearing to address their companies' market power. Cicilline demanded that the companies provide additional information on the usage of consumer data in battling their competitors.
Other hearings have recently concentrated on how social media companies store financial data and negatively affect the news industry. And US President Donald Trump has suggested further regulatory action could be down the road, joining a bipartisan group of naysayers demanding new privacy limits - as the American public grows increasingly wary of Silicon Valley's influence.
How has the company responded?
Earlier this year, Facebook CEO Mark Zuckerberg said the company would provide enhanced tools for private communication, adding that he would support European-level regulations on data. In reaction to the settlement, Zuckerberg wrote in a blog post that he was committed to "major structural changes ... and delivering the best private social platform for our community".
Other company executives have said the firm is being unfairly targeted because of widespread fears about repeated election interference by foreign nations. A direct cyberattack in September 2018 exposing access tokens for 30 million users struck yet another blow to the idea that the social network for 2 billion people - and their data - is immune from hackers, so Facebook continues to face threats from many angles.