Did the Federal Trade Commission late last week fine Facebook $5 billion?
If you read national news outlets like the New York Times and Wall Street Journal, the answer is yes. The fine, they say, was approved by a 3-2 party-line vote (with Democrats Rebecca Kelly Slaughter and Rohit Chopra in the minority). Our best guess is that it all went down at a non-public meeting on July 10. The Journal said it based its initial reporting on “two people who asked not to be named because they weren’t authorized to speak publicly about the decision.”
We have zero doubt that Facebook will eventually pay a $5 billion fine. The company itself even acknowledged that something in that range was inevitable. “In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion … We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome,” it wrote in an April press release accompanying a Securities and Exchange Commission disclosure. So yes, enforcement is afoot, and we know with some certainty what the broad strokes will be. A bolder prediction, yet still an unknown, is that Facebook will be forced to house a corporate monitor, a first for a tech company, on premises at its HQ.
Until the FTC publicly announces its decision in the matter, all this remains speculation, no matter how telegraphed it may be.
For many months, the Journal and Times have alternately reported that the massive Facebook fine was either imminent or fait accompli. It would be unfair to say that either the news organizations or their sources are wrong, but they do seem to be jumping the gun. We have no doubt that the media giants must have wrangled a leak or two following last week’s closed-door meeting of FTC commissioners, but no public release has been forthcoming, as one would expect of any enforcement action, much less one this large and potentially game-changing.
We chide the agency more than the media. Debates over how to legislate data privacy have emerged as a mainstay in Washington. Most of those debates have a common denominator: empowering the FTC to be the top cop on the data privacy beat. To live up to that heightened importance, it will need to show it is responsive, aggressive, transparent, and timely (after all, the consent decree the Cambridge Analyctica scandal violated came to light in March 2018). The FTC, especially with Facebook, has failed on all those expectations.
It is telling when a sitting U.S. Senator needs to preface commentary on the enforcement action with the word “reportedly.” That was the case with a series of tweets posted by Sen. Richard Blumenthal, a Connecticut Democrat.
This reported $5 billion penalty is barely a tap on the wrist, not even a slap. Such a financial punishment for purposeful, blatant illegality is chump change for a company that makes tens of billions of dollars every year.— Richard Blumenthal (@SenBlumenthal) July 12, 2019
“This reported $5 billion penalty is barely a tap on the wrist, not even a slap. Such a financial punishment for purposeful, blatant illegality is chump change for a company that makes tens of billions of dollars every year,” Blumenthal wrote on Twitter. “Will Facebook be compelled to alter its present, systematic abuse of privacy? Based on the reported settlement, the answer is sadly, no. … The FTC must be held accountable for this seemingly inadequate, unconscionably delayed, and historically hollow result. There must be Congressional hearings.”
”Facebook’s business model is to monetize personal, confidential consumer information,” Blumenthal tweeted. ”It is relentlessly and tirelessly expanding its business model to invade our private lives. Only structural, behavioral, and leadership reforms can restrain and hold Facebook accountable. … The FTC is foolish and foolhardy to rely on money alone to punish decades of past privacy violations and ongoing profiteering.”
While Facebook enforcement deliberations remain shrouded in secrecy, less powerful companies have no such allowance. The following were announced after last week’s meeting of FTC Commissioners (we are only assuming they were voted on at that time):
- “The Federal Trade Commission has stopped Mission Hills Federal, a student loan debt relief scheme, alleging it bilked more than $23 million from thousands of consumers with false claims that it would service and pay down their student loans. After the FTC filed a complaint seeking to end the deceptive practices, a federal court temporarily halted the scheme and froze its assets.”
- “The FTC issued an administrative complaint challenging the merger of two prosthetics manufacturers that are top sellers of prosthetic knees equipped with microprocessors. According to the FTC’s complaint, Otto Bock’s consummated acquisition of FIH Group Holdings (owner of Freedom Innovations) harmed competition in the U.S. market for microprocessor prosthetic knees by eliminating head-to-head competition between the two companies, removing a significant and disruptive competitor, and entrenching Otto Bock’s position as the dominant supplier.”
- “Reckitt Benckiser Group agreed to pay $50 million to settle FTC charges that it violated the antitrust laws through a deceptive scheme to thwart lower-priced generic competition to its branded drug Suboxone, a prescription oral medication used to minimize withdrawal symptoms in patients recovering from opioid addiction.”
One possible explanation/defense for the Facebook delay is that, after months of opportunities to secure it, Justice Department approval or courtroom signoff is needed. And yet, that wasn’t the case with the Reckitt Benckiser Group action. Beyond the FTC, it also faces an added hit from the DOJ.
The agency wrote on July 11 that: “[The company] agreed to pay $1.4 billion to resolve its potential criminal and civil liability related to a federal investigation of the marketing of the opioid addiction treatment drug Suboxone. The resolution, the largest recovery by the United States in a case concerning an opioid drug, includes the forfeiture of proceeds totaling $647 million, civil settlements with the federal government and the states totaling $700 million, and an administrative resolution with the Federal Trade Commission for $50 million.”
If multiple parties could coordinate on that case, why not Facebook’s enforcement hit? As for courts, the Mission Hills Federal case suffered no apparent delay.
Are our complaints little more than sour grapes? We admit to a degree of scoop-envy. Why should our readers, the compliance and risk professionals of corporate America, care? Frankly, any company, no matter how diligent or well-managed, can run afoul of a regulator or its rules. Enforcement actions are not a question of “if,” but “when.” It must be disheartening to know that the bigger a company grows, the more accommodations it can secure, the longer regulators punt. The billions of Facebook users, and the array of tech companies facing scrutiny, must be afforded good governance from the FTC.