Shaking Up the Settlement Process: FTC Reconsiders Whether Companies Can Deny Wrongdoing While Settling Privacy Violation Claims

[author: David Munkittrick]

The Federal Trade Commission (“FTC”) recently announced settlements of cases brought against Google and Facebook for alleged privacy violations. The Google settlement drew headlines for being the largest fine ever assessed for the violation of a FTC consent order ($22.5 million). But Commissioner J. Thomas Rosch’s dissents are perhaps more momentous, as they have prompted the FTC to re-examine its practice of accepting settlements in which companies deny wrongdoing.

The FTC’s complaint against Google alleged that the Internet services company circumvented the privacy controls in Apple’s Safari Internet browser. The FTC claimed that despite telling Safari users that they did not need to change the browser’s default privacy settings, Google exploited an exception in Safari’s cookie-blocking software to allow advertising tracking cookies. This, the FTC alleged, violated a previous settlement agreement that prohibited Google from, among other things, misrepresenting the degree of control a consumer has over collection of her personal information. The earlier settlement agreement resolved allegations brought in 2011 that Google used deceptive practices and violated its public privacy promises when it launched its social networking product, Google Buzz (which we blogged about here).

Senior FTC attorney Leslie Fair also blogged about the record-breaking Google settlement, discussing some general practices to avoid FTC scrutiny: 

  • Companies should be aware of the cookies they use, as well as when they make privacy promises outside of their privacy policy. The Google complaint alleged Google made misrepresentations on its Advertising Cookie Opt-Out Plug-In page. 
  • If a company joins a self-regulatory group, it needs to adhere to the group’s codes. The FTC accused Google of misrepresenting its adherence to the Network Advertising Initiative’s Code.
  • Companies should be careful not to circumvent users’ preferences. Google was charged with using a cookie to work around Safari’s default cookie-blocking software.
  • Finally, companies should promote communication and cooperation between IT personnel, marketing executives, and legal advisors. 

One day after the Google settlement, the FTC announced settlement of a similar action against Facebook. The FTC alleged that the social networking company violated its privacy policy by circumventing user preferences. Facebook allegedly told users that their information would be kept private despite allowing it to be shared publicly in various ways. For example the FTC charged Facebook with allowing certain third-party applications to access user profile information even when the user restricted access to “Only Friends” or “Friends of Friends”. The FTC claimed this violated Section 5 of the Federal Trade Commission Act, which makes unlawful “unfair or deceptive acts or practices in or affecting commerce ….” 

Facebook’s settlement did not include a civil penalty, but requires the company to, among other things, give consumers “clear and prominent” notice and obtain express consent before sharing personal information beyond user-controlled privacy settings, to maintain a comprehensive privacy program, and to obtain biennial privacy audits conducted by a neutral third party. 

In both settlements, Google and Facebook explicitly denied any wrongdoing, which has been common practice in FTC settlements. Yet it was each company’s denial of wrongdoing that spurred Commissioner Rosch’s dissents. 

Commissioner Rosch argued that it makes little sense to assess a record-setting penalty for conduct that the defendant denies. The Commission initially responded that Google’s denial of liability has no bearing on the FTC’s determination of good reason to believe Google had violated the previous consent order. But in his Facebook dissent, Commissioner Rosch added that allowing companies to deny culpability while settling claims may not serve the public interest, and the Commission agreed. “We share Commissioner Rosch’s desire to avoid any possible public misimpression that the Commission obtains settlements when it lacks reason to believe that the alleged conduct occurred. … Going forward, express denials will be strongly disfavored.” In place of express denials, Commissioner Rosch suggested using language akin to “neither admits nor denies.”

Over the next months, the FTC will be assessing whether to change its Rules of Practice (which control the FTC’s procedures for conducting investigational, administrative, and judicial proceedings) in light of the new disfavor over express denials of wrongdoing. We will continue to monitor for any further decisions.