Tags: Regulations | Litigation | Facebook | ipo

WSJ: Regulations, Litigation Could Sink Facebook

By    |   Wednesday, 23 May 2012 11:54 AM EDT

Facebook had one of the most celebrated initial public offers ever. Its owners are now billionaires. Yet litigation and regulation could sink the company.

As Wall Street Journal columnist L. Gordon Crovitz writes, regulators may unfriend Facebook. A Federal Trade Commission Settlement calls for a government audit of Facebook's privacy policies for 20 years. Privacy advocates, saying that isn't enough, want more.

The day Facebook went public, few people noticed that lawyers filed a $15 billion lawsuit against the company.

It could be disastrous for the company. Its entire business model, Crovitz notes, depends on its users sharing private data that the company uses to sell targeted advertising.

Facebook admitted its vulnerability in its securities filing, stating that potential risks include "changes mandated by legislation, regulatory authorities, or litigation, including settlements and consent decrees, some of which may have a disproportionate effect on us."

Of course, Google uses web surfers' search data to sell advertising, but that's different, Crovitz says. Search engine users are more likely to be shopping for merchandise, while Facebook users are probably just conversing with their friends — a fact that puts greater pressure on Facebook to find ways to sell targeted advertising.

The $15 billion lawsuit involves the company's purported tracking of users after they have logged out of Facebook. Plaintiffs charged the company with invading users' privacy and violating federal wire tap laws. If the class-action suit wins, Facebook might be unable to collect data it needs to post its targeted ads, explains ZDnet, a technology news website.

“This is not just a damages action, but a groundbreaking digital-privacy rights case that could have wide and significant legal and business implications,” said David Straite of Stewarts Law, one of the plaintiffs' law firms, in a statement.

Privacy lawsuits seem to be an ongoing battle for Facebook. Facebook has often been sued for using cookies that track users after they log out. It has fixed the issue twice, and denied the allegations twice, ZDNet says.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

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Wednesday, 23 May 2012 11:54 AM
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