Placing Facebook's $5 Billion Fine In Context

Jul 14, 2019
Originally published on July 14, 2019 9:06 am
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LULU GARCIA-NAVARRO, HOST:

Is $5 billion a lot of money? That's how much Facebook will reportedly have to pay after settling with the Federal Trade Commission this past week. And it's a record fine for the agency. But our next guest calls it a, quote, "embarrassing joke." Nilay Patel is editor-in-chief of the tech site The Verge, and he joins us now.

Welcome.

NILAY PATEL: Thank you for having me.

GARCIA-NAVARRO: Can you start by telling us what this fine is actually for? What did Facebook do wrong?

PATEL: Well, so the FTC started looking at Facebook again after the Cambridge Analytica scandal broke. You might have noticed, if you've been paying attention, Facebook has had an escalating series of scandals for over a year now. And so, really, it comes down to - Facebook said it was going to keep personal information private and didn't. And the root of it was, obviously, Cambridge Analytica, but it spread out from there.

GARCIA-NAVARRO: So you wrote in response to this, Facebook gets away with it again. Explain.

PATEL: So Facebook was already under a consent decree with the FTC stemming from 2011. That was a 20-year consent decree and settlement for the exact same thing. If you look at the press release the FTC put out then, the first line is, Facebook said it was going to keep user information private and then repeatedly broke that promise. So Facebook already had broken this rule, had already paid a fine to the FTC, had already promised it was going to do a better job and get user consent before sharing data. And here we are again. It's been a year and a half of scandals. And Facebook is going to pay this fine.

Now, $5 billion is a lot of money, but it's really, you know, somewhere between two weeks and a month of Facebook's revenue. It's a quarter of its yearly profit, which is a lot of money, but that was already priced into the stock. And you can see investors are reacting to this fine by saying, hey. That's great. It's done. It's over. The stock went up. And I think it is pretty embarrassing for the United States government to levy a fine - the biggest fine by two orders of magnitude the FTC has ever levied - and for Mark Zuckerberg's net worth to go up. And that is, ultimately, what happened.

GARCIA-NAVARRO: Facebook has been heavily criticized for years now. Why do you think the FTC hasn't dealt a more punishing blow to the company?

PATEL: That is really unclear. I think it is stunning that the largest fine in FTC history was a 3-2 vote. It was not a unanimous vote. The three Republican commissioners voted for the fine, and the two Democrats voted against it. And the Democrats uniformly wanted something stronger to happen, whether that was holding Mark Zuckerberg and the rest of the executives personally liable for the problems that they've been having, whether it's something stronger in terms of ongoing compliance and regulation of the company and what they're allowed to do or whether it's something quite as far as breaking up the whole company. That's, obviously, the most extreme thing you can do, but there's a huge spectrum between pay us some money, do some legal compliance work and breaking up the company. And somewhere in that spectrum, I think, is where the Democratic commissioners wanted to land.

GARCIA-NAVARRO: So looking ahead, I mean, what do you think is going to happen? - because there is a lot of scrutiny. There is a lot of discussion on both sides of the aisle about Facebook - and among the general population.

PATEL: I think you can already see Democrats in both the House and the Senate calling for Congress to act. Mark Warner, Richard Blumenthal, David Cicilline and the House - they're all saying, hey. The FTC has just completely blown it here. This is not what we wanted. This is a slap on the wrist for Facebook. They're just going to keep doing whatever they want. We need to take some action. Whether the action looks like a privacy law - which is something, again, that people have been talking about for a long time. Now, you know, we're a year into GDPR in Europe. We have a sense of how it works and how it doesn't work. There's a lot of interest in, can we do something like that over here? Then you have Elizabeth Warren, who, last night, just said, look. Facebook is too big to oversee. This is what I mean. Five billion dollars is a lot of money, but it's not going to stop a company the size of Facebook. It's not going to stop companies the size of Google. We should just break up the company and make these things easier to regulate. I think that's a really interesting conversation, and the volume of that conversation is getting louder every day.

GARCIA-NAVARRO: Nilay Patel, editor-in-chief of The Verge, thank you very much.

PATEL: Thank you so much for having me.

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