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Guest Commentary: “Facebook,” observes Seattle lawyer Venkat Balasubramani, writing about that company’s proposed settlement with the FTC, “is like the stereotypical person in an abusive relationship. It doles out the punishment and people keep coming on hearing a promise that it will make things right.”

Venkat wonders to what extent the proposed settlement whitewashes past sins and gives Facebook a kind of implied “good housekeeping” seal from the FTC going forward.

It’s an important concern, one that makes me think there may be reason to object to the proposed settlement, before it actually takes legal effect.

When you think about it, we’re in the same territory of regulatory bartering that concerned Judge Jed Rakoff when the SEC and Citigroup brought a proposed settlement to him for approval. Nope, he said; not going to put the Court’s stamp of approval on this. Not going to let a recidivist (one who has repeatedly broken the law) enter into a settlement in which it does not admit the allegations made about it. They don’t have to admit anything they don’t want to admit, of course; but in that event, the matter needs to go to trial and guilt or innocence needs to be adjudicated. The public needs to know what happened. (My paraphrasing, of course. Judge Rakoff’s opinion is here, and a post I wrote about that opinion is here.)

I’m not suggesting the FTC did not do good work in setting up this proposed settlement with Facebook. On the contrary, I would have to assume they did an extraordinarily good job in investigating and nailing Facebook with precise violations of Facebook’s own policies. (Let’s remember, this affair is entirely outside the partisan debate about government regulation; the FTC is not seeking to impose conformity with any standard other than what Facebook itself promulgated through its own terms of service and privacy policies.)

And in fact there is a fully prepared, easy to read and understand, 19 page FTC complaint against Facebook. You can find a pdf copy of it on the web here.

One of the allegations of the FTC complaint is that “Facebook has represented, expressly or by implication, that Facebook does not provide advertisers with information about its users,” whereas in point of fact, “Facebook has provided advertisers with information about its users.”

Here are some of the statements from Facebook privacy policies quoted in the FTC complaint:

  • “We don’t share information with advertisers without your consent . . .”
  • “We do not give your content to advertisers.”
  • “Still others asked to be opted-out of having their information shared with advertisers. This reflects a common misconception about advertising on Facebook.  We don’t share your information with advertisers unless you tell us to ([e.g.,] to get a sample, hear more, or enter a contest).  Any assertion to the contrary is false.”
  • “We never share your personal information with advertisers.  We never sell your personal information to anyone.  These protections are yours no matter what privacy settings you use; they apply equally to people who share openly with everyone and to people who share with only select friends.”

The complaint alleges that all of these assurances were untrue.

But, as an FTC press release points out, “The complaint is not a finding or ruling that the respondent [Facebook] has actually violated the law.” That’s because the charges of the complaint, specific though they may be, have not been proved in an adjudication, a proceeding that would establish, for the record and with binding legal effect, whether Facebook did break the law.

“A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated,” the FTC release dutifully points out. And that is exactly why I think the case needs a Judge Rakoff. If Facebook is not willing to admit it has abused its hundreds of millions of users with false promises, so be it, let’s get on with the proceeding; it’s worth finding out the truth.

Suggestion for what to do if this issue is important to you: consider leaving a public comment on the FTC website about the proposed Facebook settlement. Comments must be made by December 30, 2011.

Attorney William Carleton is a member of McNaul Ebel Nawrot & Helgren PLLC, a Seattle law firm. He works with startups and emerging tech companies, their founders and investors.

He posts regularly about tech-related legal issues on his blog.

More by William Carleton

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