Facebook Crackdown Options Abound as Washington Weighs Next Move
(Bloomberg) -- U.S. lawmakers and privacy advocates have spent the last year hammering Facebook Inc. to change its behavior, prompting billionaire Chief Executive Officer Mark Zuckerberg to reveal his vision for government oversight of the internet.
Yet Zuckerberg’s weekend plea for regulation may not align with what Washington is willing -- and able -- to do, as critics call for actions that could go as far as breaking up the company.
Facebook is under fire for a cascade of missteps, including repeated data lapses and letting Russians exploit its platform to sway U.S. elections. It drew public anger after revelations that it allowed Cambridge Analytica, a British political consultancy that worked with Donald Trump’s 2016 campaign, to obtain data on millions of Facebook users without consent.
More recently, the company’s plan to integrate its Instagram and WhatsApp chat services into its own Messenger platform raised concerns the move was designed to avoid a regulatory breakup and accelerate user data collection ahead of potentially tougher privacy rules. Facebook also faces possible regulation of content, particularly following its failure to stop the spread of videos of last month’s attacks at two New Zealand mosques.
Zuckerberg called over the weekend for government regulation of four broad areas -- harmful content, election integrity, privacy and data portability. He suggested rules such as the European Union’s General Data Protection Regulation as a common framework.
Whether and how the company can be tamed are open questions. Scenarios range from the most imminent likely punishment -- an expected multi-billion dollar penalty to be levied by the U.S. Federal Trade Commission for privacy violations -- to longer-term efforts to dismantle the company or make it more accountable for content on its platform.
Here’s a closer look at the possibilities:
The most significant threat to Facebook is the FTC’s privacy investigation, which is examining whether the company violated a 2011 settlement with the agency. The investigation has dragged on for more than a year and could result in Facebook paying a multi-billion dollar fine. That would be unprecedented for the agency -- whose record fine in a privacy case is $23 million -- but it would be manageable for Facebook.
Privacy advocates want to see more than just a sizable fine. Some want the FTC to require the appointment of an independent director on the company’s board to represent the interests of users. There’s also a push to prohibit Facebook from integrating the business operations of Instagram, WhatsApp and Messenger.
Others go further and say Facebook should have to unwind those properties. Data collection practices should be restricted, advocates say, like stopping the capture of data from people who aren’t actually Facebook users. There’s also a call for the appointment of an independent privacy ombudsman that will review Facebook’s operations and publicly recommend changes.
Facebook could draw antitrust scrutiny on multiple fronts. The most radical outcome of a monopolization investigation would be a breakup of the company, which Senator Elizabeth Warren, a Massachusetts Democrat and presidential candidate, has proposed. Warren argues that the government should designate the company as a utility and separate the main social-media business from Instagram and WhatsApp.
Facebook would be sure to fight any such attempt, leading to a lengthy and high-stakes court battle with antitrust enforcers that could still leave the company intact if they fail to prove Facebook is an illegal monopoly. There hasn’t been an antitrust breakup of a company since AT&T in 1982.
Antitrust officials at the Justice Department and the FTC have other avenues to rein in the company short of a breakup. They could move to curb certain conduct seen as squelching competition. Some have pointed to the decision by Zuckerberg to block Twitter’s video service Vine from the platform in 2013 as an example of the social media company abusing its power.
Future acquisitions are also certain to face tougher scrutiny than when the company bought Instagram and WhatsApp, deals that sailed through the FTC. Today, many see approval of those acquisitions as a mistake because they enabled Facebook to buy emerging competitors and solidify its dominance.
In 2018, the Cambridge Analytica scandal and a series of Facebook lapses increased public anger that was already simmering from years of data scandals and breaches at companies including Sony Corp., Equifax Inc. and Target Corp. Republicans and Democrats alike say they’re looking to pass federal legislation on the issue. Several industry groups have agreed on the need for consumers to have greater insight into, and control over, what personal information is being collected about them.
Although Facebook already gives users control over a lot of its data collection practices, any restrictions could still greatly affect its business model.
There are key splits between the political parties, and a law could be further off than its champions suggest. Industry groups, including some that represent Facebook, are pushing for Congress to overrule state statutes, especially a strict California law passed last year. Republicans have joined the call for overriding state laws as a way to avoid a regulatory patchwork. But consumer groups and some Democrats have said Congress shouldn’t overrule state laws unless a federal standard offers even greater protection.
There’s pressure from industry for unified national policy, while lawmakers push for a bipartisan agreement. Representative Jan Schakowsky of Illinois, who leads a subcommittee on consumer protection, told reporters in February she was hoping to have a bill passed by the end of 2020.
With few exceptions, Facebook and other sites aren’t liable for the content that their users post. A growing number of tech critics have called for paring back the immunity social media companies enjoy. Critics include conservatives that allege social media is biased against them and tech-watchers that are concerned about the impact of controversial and violent content, such as the videos of the New Zealand killings. Online tech companies say ending the protections would make their businesses untenable.
The law, known as Section 230 of the Communications Decency Act, was recently pared back to the great consternation of the tech platforms. Last year, the U.S. limited the immunity of platforms that knowingly facilitate sex trafficking -- an effort that Facebook resisted, but eventually supported.
Many in the tech policy community believe another push to narrow protections could come as Congress tries to tackle illegal drug ads, which can be found on Facebook. Representative Greg Walden of Oregon, the top Republican on the House Energy and Commerce Committee, has said he might want to take up the issue of the liability protections more broadly in a net neutrality fight, and Europe is considering fines for failure to remove terrorist propaganda.
Some conservatives have also floated the idea of limiting the exemption from liability for user content as a tool to address conservative bias, although it’s not clear how that could work without running afoul of First Amendment protections. It’s also not clear if any of the pushes have broad backing.
In January, a coalition of consumer groups called for the creation of a new U.S. data protection agency that would handle privacy enforcement in place of the FTC, which the groups view as a toothless agency that has failed to carry out its consumer protection mandate.
When Zuckerberg testified before Congress, he told Democratic Representative Raul Ruiz of California the idea “deserves a lot of consideration.” This scenario doesn’t seem likely to gain traction given that most of the debate on privacy enforcement has focused on how to strengthen -- rather than sideline -- the FTC. It’s also considered extremely difficult to secure the political consensus necessary to set up a new agency.
Facebook said last July that it was cooperating with a probe by the U.S. Securities and Exchange Commission related to its sharing of data with Cambridge Analytica. Unlike other agencies zeroing in on privacy concerns, the SEC is likely focused on whether Facebook made timely and accurate disclosures to investors. If the regulator finds that executives withheld material information, its enforcement unit could sue the company and or its top executives. In most cases the agency ends up settling and those it accuses of wrongdoing agree to pay fines or return money to investors. SEC inquiries can drag on for years and while enforcement actions can result in significant penalties, they rarely are big enough to damage a public company’s long-term financial situation.
The Department of Housing and Urban Development has accused Facebook of enabling and encouraging bias based on race and religion, as well as sex, by restricting who can see housing-related ads on its platforms and across the internet. The complaint will be heard by a U.S. administrative law judge unless one of the parties to the lawsuit wants it moved to federal district court. If the judge rules that Facebook violated the Fair Housing Act, penalties could include fines and a ban on the ads in question.
In February, California Governor Gavin Newsom proposed a “digital dividend” that would let consumers share in the billions of dollars made by technology companies such as Facebook. Democratic Senator Amy Klobuchar of Minnesota, who is also running for president, has echoed the idea. This initiative is still embryonic and neither has described what form a tax would take.
In January, the U.S. Treasury Department began discussions with the other 35 countries in the Organization for Economic Cooperation and Development about how to tax global digital companies. Any outcome from these negotiations would take years, if not decades, to implement.
Democratic Senator Ron Wyden of Oregon in November released a draft of a bill that would impose steep fines and even prison time for executives at corporations that fail to adequately safeguard Americans’ personal data. He hasn’t released a final bill and the initiative isn’t likely to gather momentum.
Even without the possibility of prison, there’s a push to hold individual executives accountable for data violations. FTC Commissioner Rohit Chopra, a Democrat, has called for the agency to use this authority when a company violates an order imposed by the FTC -- like Facebook’s privacy consent decree.
Chopra has argued the FTC should in some cases seek the dismissal of executives and board members who oversee conduct that violates agency orders, especially in cases of repeat offenders. Clawbacks of bonuses and changes in executive compensation, bans on business practices and closing of business lines are other possible punishments Chopra outlines. Any action would require a majority vote of the Republican-controlled commission.
©2019 Bloomberg L.P.