Facebook: More Than Stock Problems
Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The class action lawsuit “In Re: Facebook, Inc. Internet Tracking Litigation” could be the beginning of a long, drawn-out litigation entanglement for Facebook (NASDAQ: FB). On top of that, it could also deep-six the social networking segments of Google (NASDAQ: GOOG), LinkedIn (NYSE: LNKD), Twitter, and MySpace. Already influentials and players in high-tech such as Nigel Dunn have been explicitly asking if privacy issues can kill the social media movement.
That class action, which you can read and review here, could be more a threat to Facebook than the lack of investor enthusiasm for its IPO, the slowing growth in revenues, and mobile which it is attempting to address with its acquisition of Karma. In addition, this suit could diminish funding for social outlets which provide social networking features. Investors of all kinds could assume the networks possibly harbor toxic elements in the form of cookies that will bring litigation, fines, NGO push-back, and horrific publicity. There are rumblings about returning to the old-line companies like Coca-Cola which are unlikely to be loaded with secret landmines which could explode, without warning.
The Internet Tracking Litigation targets alleged privacy violations by Facebook. However those or similar ones have also been proved to exist or are alleged to be operating in the other major social networking sites. In essence, this action, which combines 21 cases, claims that Facebook violated the privacy rights of members by tracking their web activities, without their knowledge or consent, when they had already logged off the site. By inserting small text files known as “cookies” on members’ computers the social network could intercept, off-site, their communications and track where and what they are browsing. This is in violation of federal and state laws, including the Federal Wiretap Act, the Stored Communications Act, and the Computer Fraud and Abuse Act. The data derived could be used to sell advertising. The 46-page brief describes in technical detail how the alleged tracking occurred. This kind of litigation could get bigger and go global. Others in the U.S.and abroad could also file lawsuits. Of the 800 million or so Facebook members, the brief estimates only 150 million are in the U.S. The rest are outside.
The litigation contends that the value of the data can be quantified. It cites, for example, Tim Morey's 2011 study “What’s Your Personal Data Worth?” According to Morey’s calculations, annually an individual’s health profile is worth $38, web browsing history $52, credit card information $150, and social security number $240. Therefore, the plaintiffs assert that there is justification for the amount it demands for damages: $15 billion. In addition, it wants injunctive relief, that is, for the alleged practice to stop.
It’s not inconceivable that Facebook and other social network companies, which are also being sued, have paid fines, and/or are being investigated by federal authorities could go bankrupt. For instance, the particular allegations could also represent violations of the settlement Facebook made last year with the U.S. Federal Trade Commission. Fines for each violation of that settlement are $16,000 per day. Another scenario is that those in-the-know abandon these supposedly “free” networks and oversee establishing alternates. Those might be funded by paid subscriptions or underwritten by foundations or trade associations. A Pew Research 2012 study found that of the two-thirds of Internet users who visit social networks, 63% are active in managing their accounts for increased privacy. At the very least, especially if other class action suits are filed and the litigation becomes global, Facebook could have the brand damage Microsoft suffered both in the U.S. and Europe with the anti-trust litigation.
Facebook has a lot of company in being pursued for privacy violations on the web and through mobile.
* Google is being investigated in the U.S. as well as the European Union for allegedly bypassing the privacy constraints on Apple’s Safari browser for the web. According to THE WALL STREET JOURNAL, the result of the findings could mean years of litigation and fines for Google.
* LinkedIn, in a test of what it called “social ads,” had posted photos and information about members on its blog and banner ads. Those postings included instructions on how members could opt out. The problem was that members, who weren’t informed that they could automatically be included, didn’t know they were being featured. Eventually, after members protested, LinkedIn backed down.
* Twitter admitted that when smartphone users click “Find Friends,” their entire address book was downloaded and retained for 18 months.
* MySpace has been charged by the Federal Trade Commission with violations of federal law for going back on its promise not to disclose user information with advertising companies. In response, without admitting fault, it agreed to a consent order requiring, among other mandates, to establish privacy policies and controls. It’s up to the FTC whether to accept the consent order.
For those like Dunn who ask if the privacy concerns will end the social media movement, the answer is likely “no.” The greed motives could possibly be eliminated and data not illegally and unethically collected and sold if the networks were overseen by the nonprofit and government sectors. As publicity grows about the allegations in ‘In Re: Facebook, Inc., Internet Tracking Litigation,” it could come to just that.
janegenova has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and LinkedIn. Motley Fool newsletter services recommend Google and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.