2010 Lane Reports

Privacy, the Cost of Innovation?

The Lane Report, June 2010
Tuesday, June 1, 2010
by Lisa Sklenicka

With the backlash against Facebook for privacy breaches, consumers, lawmakers and the media have made it clear that personal information is the hot new commodity that cannot be sold for free membership to social networking sites.  The numerous news articles on Facebook's breach of its users' privacy have left Facebook backpedaling to address the seemingly growing question of the American public -- how valuable is our personal information?  While, at first glance, the Facebook story may seem innocuous and merely the latest bandwagon of bad publicity, in actuality it could significantly change the way businesses operate on the Internet with respect to their collection, storage and use of its customers' personal information.

Facebook, a social networking site founded by Mark Zuckerberg with his college roommates and fellow computer science students, Eduardo Saverin, Dustin Moskovitz, and Chris Hughes, was launched from Zuckerberg's dorm room on February 4, 2004.  Started as means to reconnect with college friends, Facebook has grown in a mere six years to more than 400 million active users worldwide and may be valued somewhere between $3.75 and $5 billion dollars. Although we should not be surprised at the explosion of social networking sites, considering less than 20 years ago, the Internet was a mere concept, the phenomenon of Facebook is staggering. 

Reports that Facebook is selling its users' privacy for profit has Facebook plastered in the news addressing the privacy concerns of the American public.  With the number of Facebook users estimated at more than the population of the entire United States, clearly Facebook needs to make a profit to continue its operations and evolve.  Just like other Internet sites, search engines and Internet applications with a significant web presence, online advertising supports much of the commercial content and applications without charge to its users.  The Internet business model is well established and successful; however, the "true cost" of privacy is now being examined, and Facebook's non-business forum provides the perfect platform to examine this issue.  The reason for this is Facebook users view Facebook unlike other Internet applications because it is personal and social in nature and users are much more likely to disclose sensitive information than other Internet applications, which is considered invaluable to advertisers.   As stated in a recent Time Magazine article about the Facebook experience of sharing such personal moments: "The feelings you experience on Facebook are heartfelt; the data you are providing feeds a bottom line." 

The case against Facebook has been building for some time starting with the update of its privacy settings several months ago.  Facebook claimed the new privacy settings were intended to give users more control over their information, but as reported, may in fact have made some user's information more open by default.  Personal information such as family pictures, friend lists, e-mail addresses and other information have been able to be viewed by the entire Internet even though users thought they were only available to selected friends. Although the average consumer may not see this as a big problem, complaints about Facebook's new privacy settings stated that not only is changing their settings so time-consuming, the complexity made it almost incomprehensible for the average computer user to understand.  Furthermore, these changes were contradictory to the original policy outlined when users joined the social networking site, possibly changing Facebook's image from the college dorm invention to Internet's top brass in the minds of its customers.

The other shoe dropped less than two weeks ago when the Wall Street Journal reported that Facebook, as well as several other social-networking sites, gave advertising companies information that could be used to look up individual profiles, which, depending on the site and the information a user has made public, include such things as the person's name, age, hometown, and occupation. With a click of a button, advertisers were provided with information that once required significant time and money to obtain.  The icing on the cake was that Facebook (and other social networking sites) was allegedly made aware of these loopholes over a year ago when a research team discovered them, but did nothing to fix them. 

From a legal perspective, this information-sharing with advertisers was contrary to Facebook's privacy policy and sparked the civil liberties groups to bring this to the attention of Internet watchdog, the Federal Trade Commission ("FTC").  Fifteen privacy and consumer organizations, including the Electronic Privacy Information Center ("EPIC"), filed a complaint with the FTC charging that Facebook engaged in unfair and deceptive trade practices in violation of consumer protection law, and stating that Facebook continues to manipulate the privacy settings of users and its own privacy policy so that it can take personal information provided by users for a limited purpose and make it widely available for commercial purposes. 

Although there has been some regulation by Congress and the various state governments in the past few years regarding privacy, the Internet is still a relatively new frontier regarding regulation relating to consumer privacy.  Lawmakers have also used this opportunity to direct how companies use personal information.  Last month, Rep. Rick Boucher (D-Va) and Rep. Cliff Stearns (R-Fl) proposed federal legislation on this very topic.  The proposed legislation goes further in protecting consumers' privacy information, requiring any company that collects personally identifiable information about individuals to conspicuously display a clearly written and understandable privacy policy that explains how information about individuals is collected, used and disclosed.  Although no consent would be required to collect and use operational and transactional data (such as routine web logs and session cookies) or use aggregate data necessary for the functioning of the website, or data that has been rendered anonymous, under the proposed legislation, companies would be required to obtain an individual's express opt-in consent to knowingly collect sensitive information about an individual, including information that relates to an individual's medical records, financial accounts, Social Security Number, sexual orientation, government-issued identifiers and precise geographical location information. 

The legal significance of this proposed legislation is that businesses will be forced to affirmatively acquire a users' consent before it can use any information deemed "sensitive information."  This ultimately would create a greater safety net for consumers' personal information as it would be presumed such information was not available for a company to use, collect or disclose. Thus, making it more difficult for businesses to collect the valuable personal information they may desire.

The average Facebook user may not see this as a pressing issue, but a small but vocal number of users are also voicing their protest over Facebook's privacy policy.  These users declared yesterday as "Quit Facebook Day."  The group reasoned that Facebook did not have much respect for individuals or their personal information, and they could not see Facebook's current direction being aligned with any positive future for the web; however, it was reported that number of users that actually quit Facebook yesterday was just over 27,000, which is hardly significant when compared with the over-all number of Facebook users.

Still, the bad publicity forced Facebook's founder and CEO, Mark Zuckerberg, to respond to such scrutiny and complaints.  The Washington Post published a letter written by Zuckerberg in which he admitted that Facebook has made mistakes with the treatment of its customer's personal information and would fix these issues.  He promised to close the privacy loopholes and make its privacy controls much simpler, and would roll these out in the next few weeks.  The bad publicity may be the catalyst Facebook needed to move in the right direction to protect its users' personal information. Hopefully other key players will follow suit.

The lesson to businesses is that the American public is unwilling to compromise their privacy for profit, and in the wake of all this publicity, personal information just got more expensive.  We cannot deny the draw of Facebook and its potential benefits to society as it produces numerous networking opportunities in this turbulent economy; however, if more government regulation results for the purpose of protecting consumers' privacy (instead of an afterthought), this may the right direction for the country.  

Companies operating on the Internet may want to revisit their privacy policies and procedures and ensure they are taking a proactive approach to protecting their customers' personal information as it is likely legislation regarding this issue will be introduced in the near future.  The Law Offices of Marc J. Lane would be glad to review your company's website and privacy policies.  Please contact Marc Lane at (312) 372-1040 or [email protected] to get started.


Lisa Sklenicka is an Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation.  Ms. Sklenicka graduated with honors from DePaul University College of Law (J.D.) and Michigan State University (B.A.).  Ms. Sklenicka previously was an Assistant General Counsel for DePaul University.



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