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Data Privacy | FTC penalising Facebook is just the beginning

By fining Facebook, FTC will send a signal to all tech firms of more crackdowns. Regulators across the world may take a cue and start investigating social media firms soon.

April 26, 2019 / 04:34 PM IST

On Wednesday, Facebook officially admitted that it is expecting a penalty of up to $5 billion by the US Federal Trade Commission (FTC) for privacy violations. If FTC imposes the fine, this will be the largest for any technology company in its history. The biggest so far was a $22-million penalty on Google in 2012.

The US regulator has faced criticism globally for being biased towards the Silicon Valley firms which are left to grow unchecked with little regulation. A $5-billion fine on Facebook, if it materialises, will be the start of a new era. Things will not be the same for technology companies in the US anymore.

The expected fine is the outcome of an ongoing inquiry by the US regulator for an alleged violation of 2011 privacy consent decree in which Facebook had agreed to take a series of measures to protect the privacy of its users. The decree came after an investigation that found misuse of data had caused harm to consumers. Since the time FTC found that Facebook failed to abide by the agreed terms, the social media company has been negotiating with the US regulator. Interestingly, in 2018 FTC started a fresh investigation and Facebook was found to have shared data with third-party consulting firms, such as Cambridge Analytica, which planned the political campaign for Trump using Facebook users’ data without consent. There have also been allegations of data breach of 50 million users.

While this would be the first time an American regulator will impose a heavy penalty on a tech firm, it is not new in other parts of the world. Last July, the European Union imposed a fine of $5.1 billion on Google for misuse of its power in the smartphone market.

However, even if FTC penalizes Facebook, it won’t dent its balance sheet significantly. The social media giant has more than $45 billion in cash reserves. Facebook’s March-quarter revenue grew 26 percent to $14.97 billion, while net income dropped 51 percent, as the company set aside $3 billion for legal expenses relating to the FTC case. The street was probably expecting the penalty to be much bigger. Post-earnings announcements, which included the penalty figure, Facebook’s stock price rose more than 8 percent during the after-hour trading.

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The negotiations with FTC might have been the reason why Facebook co-founder and chief executive Mark Zuckerberg last month spoke about his plans to eventually shift people towards private conversation, as privacy is becoming the most important concern across the world.

Interestingly, this is not the first time Facebook is going to face a penalty. In October last year, a UK regulator, Information Commissioner’s Office had imposed a fine of £500,000 in connection with the Cambridge Analytica scandal. The fine imposed by the UK regulator was probably a wake-up call for the American regulator, which is now ready to crackdown the social media giant. However, when it starts, it is unlikely to stop with Facebook. By penalizing Facebook, FTC is sending a signal to the Silicon Valley tech fraternity that times are changing.

Even for Facebook, the penalty by FTC won’t be the last one. Facebook is present across the world barring a few countries. The Zuckerberg-owned social media giant is facing numerous issues in each of the countries— ranging from coping with the local regulations, to failing to tackle fake news, to concerns of privacy breach of local users, including in India, where it has the largest number of users (even more than its home market, the US).

Facebook, along with its other social media entities like WhatsApp and Instagram, have been summoned by the Indian authorities. Just before the election started in the world’s largest democracy, authorities indicated the possibility of penalising social media firms if an attempt was made to influence the electoral process through undesirable means.

Facebook, along with all its companies have since been working hand-in-hand with the Indian government to control dissemination of fake news, or misinformation. Despite all their efforts, Reuters reported , fake news still thrives across social media.

In any case, as has happened in the US, Indian political parties have used Facebook and its messaging entity WhatsApp for political propaganda in the past. The role of Cambridge Analytica in India’s last general elections in 2014 has also been widely reported. Cambridge Analytica, like everywhere else, used Facebook users’ data to design election strategies for political in India.

As countries get tougher on privacy concerns, data sharing and cross-border data flows, this will increase regulatory scrutiny on Facebook and other social media companies. Secondly, social media is no longer just about connecting people but also big business. Regulators are wisening up to that fact. Thus,  penalties may get more frequent and harsher.
Sounak Mitra is an Associate Editor, Moneycontrol. He has been writing on corporate issues and policy for more than 15 years, having previously worked with Mint, Business Standard, Mergermarket, The Telegraph and The Times of India.

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