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Court Slams Facebook, Allows Privacy Class Action Worth Billions

Last Updated September 23, 2020 12:53 PM
Lawrence Meyers
Last Updated September 23, 2020 12:53 PM

Facebook and Mark Zuckerberg just had their ears boxed by the 9th US circuit Court of Appeals regarding privacy concerns related to Facebook’s facial recognition technology. The decision  by the court opens the possibility of a massive Facebook class action lawsuit that might cost it billions of dollars.

Facebook Collecting Data?  Say It Isn’t So!

Back in 2015, number of Facebook users in Illinois filed a lawsuit against the company, claiming it violated the Illinois Biometric Information Privacy Act. You know the “tag suggestion” feature on those Facebook photos of yours? It turns out that naming the people in the photos violates that Illinois law.

The lawsuit alleges that, since facial recognition is considered biometric information, that Facebook broke the law by allowing users to tag people and then collecting that biometric information.

Specifically, the plaintiffs assert that Facebook did not disclose it was collecting and storing that data, nor that it had users consent for it. Facebook denied the allegations.

According to the three judges who voted unanimously to let this class action lawsuit proceed in California, the crux of the plaintiff’s argument hinges on whether or not Facebook “collects and stores scans of face geometry”. They agreed that it does.

Interestingly, Google had a similar case dismissed last year.

Facebook Stock Won’t Blink An Eye

There are a few important items regarding this case that are worth noting.

The first question is to what extent this class action will affect Facebook stock. Although Facebook stock didn’t move very much on this particular news, there is the potential for a class-action case to result in a payment of $1000 for each negligent violation, and upto $5,000 for each reckless violation.

Illinois has 7 million Facebook users.

It seems unlikely that every single one of those users have been tagged in a photo. There also seems to be a fairly high bar for the plaintiffs to prove that these violations were reckless, as opposed to merely negligent. But like almost every class-action lawsuit, the case will likely be settled out of court.

That also means that Facebook will once again likely be laughing all the way to the bank. That’s because Facebook has $47 billion of cash on its balance sheet, And generates more than $17 billion in free cash flow every year.

Facebook could literally settle for billions upon billions of dollars and literally not miss it. Then the class action attorneys will take their cut, and the 7 million Facebook users in Illinois might each get a few hundred bucks. Maybe, if they’re lucky.

This just goes to show that Facebook is pretty much invincible at this point, short of draconian antitrust measures on the part of the federal government.

Facebook stock barely moved when it had to pay a $5 billion settlement to the Federal Trade Commission over privacy issues a few weeks ago.

Neither the case, nor the settlement, will result in any material difference to Facebook stock. Nor will it make any material difference to Facebook’s operations.

But Political Risk Remains to The Stock

Does this case decision infer anything about Facebook stock, in terms of mounting political opposition to its operations, and increasing anger among consumers regarding privacy?

This is where we return to the question of whether the federal government may press a number of different fronts to reduce the egregiousness of Facebook’s behavior.

The 9th US circuit Court of Apis one of the more liberal courts in the nation. It is surprising to see three liberal justices agree on this particular case. that suggests that Facebook stock could be at risk in the long term if the two parties come together to bring the hammer down on the company.