Negotiation in the News: Inside the FTC’s battle to show Facebook who’s boss

When your counterpart has more resources than you do, you’ll need to call on other sources of power.

By — on / Business Negotiations

This July, the U.S. Federal Trade Commission (FTC), the country’s consumer protection agency, voted to impose a roughly $5 billion fine on Facebook for mishandling its users’ personal data. It was by far the biggest penalty the U.S. government has levied against a technology company. The next- largest—$22 million imposed on Google in 2012—didn’t even come close.

Yet in Congress and beyond, praise for the settlement was muted. The deal passed narrowly and along party lines: The FTC’s three Republican commissioners endorsed it; the FTC’s two Democratic commissioners did not. The decision “gives Facebook a lot to celebrate,” Democratic FTC commissioner Rohit Chopra wrote derisively in his dissenting statement. He and other critics said the settlement didn’t go far enough to ensure that Facebook wouldn’t repeat its past mistakes. Indeed, given that Facebook earned $55 billion in revenue in 2018 and is worth more than $580 billion, it seemed unlikely the company would feel the sting of a $5 billion fine.

The agreement highlights the difficulty of negotiating with a counterpart that has abundant financial resources—and suggests how you might draw on other sources of leverage.

Repeat offender?

Back in 2012, settling FTC charges that it had deceived consumers by sharing their private information, Facebook promised to take steps to better protect such sensitive data.

Six years later, in March 2018, the FTC began investigating Facebook following media reports that the social media giant had allowed Cambridge Analytica, a British consulting firm that worked for Donald Trump’s 2016 presidential campaign, to harvest its users’ personal information without their consent and apply it to creating political messages that would influence voters. The FTC set out to determine whether Facebook ’s actions had violated the 2012 settlement.

As additional accusations against Facebook emerged, both congressional Democrats and Republicans urged the FTC to come down hard on the company. The FTC has been much less aggressive than European governments in penalizing technology companies for privacy violations and other transgressions.

But the FTC’s annual budget of about $306 million severely limits its privacy and antitrust enforcement efforts and puts it on an uneven playing field with deep-pocketed tech giants. The FTC’s enforcement actions are also constrained by the lack of a U.S. consumer privacy law.

The FTC has been much less aggressive than European governments in penalizing technology companies for privacy violations and other transgressions.

Keeping it out of court

By the end of 2018, FTC investigators concluded that Facebook had, indeed, breached the 2012 consent decree by misleading tens of millions of people about how the site had used their phone numbers, photos of their faces, and other personal information, the Wall Street Journal reports. Based on the number of users who had seen misleading privacy disclosures about Facebook, the FTC computed that Facebook’s fine should be in the tens of billions of dollars, according to the Washington Post.

Citing a different formula, Facebook calculated that the fine should be well below $1 billion. The company reportedly believed it would prevail if it challenged a high FTC penalty in court—yet it had a strong motivation to settle out of court, notes the Post. Facebook CEO and board chair Mark Zuckerberg and other executives wanted to avoid taking the witness stand and facing public scrutiny, which could prompt Congress to propose new privacy laws.

The FTC was also motivated to settle. The agency’s legal budget was no match for Facebook’s, and losing such a high- profile lawsuit could lessen its ability to hold other tech companies accountable for similar violations. And even if the government prevailed in court, a judge was likely to hand down a much lower fine than what the FTC had in mind.

Concession time

Ultimately, Facebook agreed to pay $5 billion—significantly more than it said it believed was required—to win a series of concessions from the FTC.

The two Democrats on the commission had argued for placing Zuckerberg under an FTC order, which would open him up to fines and penalties if Facebook made further missteps. Facebook lawyers threatened to take the case to court if the FTC did so. Ultimately, the parties agreed that Zuckerberg would be required to certify that Facebook is in compliance with new privacy rules and that he could be held accountable for making false statements in the future.

Facebook also successfully pushed back against FTC demands for new restrictions on its data collection and information sharing with third parties. The parties reached a compromise in which Facebook agreed to accept stronger federal oversight of its management of user data, the New York Times reports. An independent auditor will control Facebook’s privacy policy and compliance, and the company’s board will create a committee to monitor Facebook’s privacy practices. The new rules apply not only to Facebook but also to its other products, including Instagram and WhatsApp.

In the end, the FTC’s two Democratic commissioners refused to endorse the deal because of the agency’s concessions on data collection and information sharing, according to the Times. Notably, the settlement did not require Facebook to admit to wrongdoing.

A high-profile outcome

After news of the settlement broke on July 12, Facebook shares rose 1.8%, suggesting investors believed the company could easily absorb the $5 billion fine.

According to Chopra, one of the two dissenting FTC commissioners, the agency did not sufficiently investigate Facebook’s privacy violations. The other dissenting FTC commissioner, Rebecca Kelly Slaughter, said that litigation would have provided “important transparency and accountability.”

While many congressional Democrats viewed the settlement as a mere slap on the wrist, some tech-industry experts said it would motivate leaders of other companies to beef up their privacy practices. Moreover, the fine gives the FTC the appearance of catching up with its European counterparts, according to Politico; the European Union fined Google $5.1 billion for violating antitrust rules with its online ads.

Bolster your sense of power

In conflict resolution and negotiation, it’s easy to be intimidated by a counterpart who seems to have unlimited resources. The following advice can help you find untapped sources of power:

  • Examine your counterpart’s BATNA. You may think you have a bad BATNA, or best alternative to a negotiated agreement, but have you thought about what your counterpart will do if you can’t reach a deal? The other side may be just as motivated as you are to stay at the table. Both Facebook and the FTC, for example, had strong reasons to settle and stay out of court. When you know your counterpart also has a weak BATNA, you may decide you can press harder for a better deal.
  • Look for wise tradeoffs. Facebook appears to have carefully calculated its interests and decided it was willing to concede on price in return for concessions from the FTC on other issues. Similarly, the FTC made concessions while pushing to get a high penalty (though lower than many deemed fair) that would show its muscle. In negotiation, identifying your priorities can allow both sides to get more of what they value most.
  • Welcome dissent, but strive for consensus. Negotiating teams that debate issues, priorities, and goals are more effective than those that keep disagreements and conflict under wraps. But try to reach consensus on your goals before negotiating so that you can present a united front; otherwise, your counterpart may be able to play a game of “divide and conquer” that leaves dissenters—and their good ideas—out in the cold.

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