Friday, October 12, 2012

Losing Face if Book is Thrown at Them

The case was highlighted in an article by Bloomberg titled "Facebook Seeks Dismissal of $15 Billion Privacy Suit". Here is an excerpt of the action:

1.This class action lawsuit, seeking in excess of $15 billion in damages and injunctive relief brought by, and on behalf of, similarly situated individuals domiciled in the United States who had active Facebook, Inc. accounts from May 27, 2010 through September 26, 2011...

We added the bold type above to highlight who can be part of the "class". We recommend a thorough read of the case to all interested parties to see who may qualify to participate as part of the "class". In our opinion, the legal question posed by this case is potentially more harmful than the other shareholder suits outlined by the Wall Street Journal's article: "Facebook's Next Fight: Suits, and More Suits".

The privacy "wiretapping" lawsuit accuses Facebook of secretly tracking users' Internet activity after they log out of their Facebook accounts. This is done using "cookies" which are activated when a user logs into a Facebook account. These cookies can also be used by hackers in intercepting a user's data which is yet another privacy concern. Facebook has filed a motion to dimiss the suit for lack of establishing a Facebook user's harm. We believe that the value of one's privacy is "priceless". The suit accuses Facebook of violating federal wiretap laws with statutory damages per user of $100 per day per violation, up to $10,000 per user. With over a billion users, let's assume that the court decides that $10,000 is too much to award to each user and asserts the $100 floor per user, this would equate to $100 billion in damages and would wipe out more than all the equity in FB.

While this may seem highly speculative at first blush, according to the Wiretap Act, it's a crime for anyone that is not a party to a communication to be eavesdropping. If a crime in this case is established, Facebook could be ordered to shut down much like Kim Dotcom's Megaupload shutdown which was based on violation of US Copyright laws. In addition, the "wiretapping" lawsuit also charges that Facebook is violating the Stored Communications Act and the Computer Fraud and Abuse Act. Any way you look at this battle, it seems like a high stakes issue for Facebook which is not seriously being weighed by investors.... yet. (more)