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(Reuters) – U.S. federal prosecutors are conducting a criminal investigation into data deals Facebook Inc struck with some of the world’s largest technology companies, the New York Times reported on Wednesday.
A grand jury in New York has subpoenaed records from at least two prominent makers of smartphones and other devices, the newspaper reported, citing people familiar with the requests and without naming the companies.
Both companies are among the more than 150, including Amazon.com Inc, Apple Inc and Microsoft Corp, that have entered into partnerships with Facebook for access to the personal information of hundreds of millions of its users, according to the report.
Facebook is facing a slew of lawsuits and regulatory inquiries over its privacy practices, including ongoing investigations by the U.S. Federal Trade Commission, the Securities and Exchange Commission and two state agencies in New York.
In addition to looking at the data deals, the probes focus on disclosures that the company shared the user data of 87 million people with Cambridge Analytica, a British consulting firm that worked with U.S. President Donald Trump’s campaign.
Facebook said it was cooperating with investigators in multiple federal probes, without addressing the grand jury inquiry specifically.
“We’ve provided public testimony, answered questions, and pledged that we will continue to do so,” Facebook said in a statement.
Facebook has defended the data-sharing deals, first reported in December, saying none of the partnerships gave companies access to information without people’s permission.
A spokesman for the United States attorney’s office for the Eastern District of New York, which The New York Times reported is overseeing the inquiry, said he could not confirm or deny the probe.
Reporting by Ismail Shakil in Bengaluru and Katie Paul in San Francisco; Editing by Richard Chang and Leslie Adler
Facebook’s massively lucrative advertising model relies on tracking its one billion users—as well as the billions on WhatsApp and Instagram—across the web and smartphone apps, collecting data on which sites and apps they visit, where they shop, what they like, and combining all that information into comprehensive user profiles. Facebook has maintained that collecting all this data allows the company to serve ads that are more relevant to users’ interests. Privacy advocates have argued that the company isn’t transparent enough about what data it has and what it does with it. As a result, most people don’t understand the massive trade-off they are making with their information when they sign up for the “free” site.
On Thursday, Germany’s Federal Cartel Office, the country’s antitrust regulator, ruled that Facebook was exploiting consumers by requiring them to agree to this kind of data collection in order to have an account, and has prohibited the practice going forward.
“Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts,” FCO president Andreas Mundt said in a statement announcing the decision.
“We disagree with their conclusions and intend to appeal so that people in Germany continue to benefit fully from all our services,” Facebook wrote in a blog post responding to the ruling. The company has one month to appeal. If it fails, Facebook would have to change how it processes data internally for German users, and could only combine the data into a single profile for a Facebook account with that user’s explicit consent.
“This is significant,” says Lina Khan, an antitrust expert affiliated with Columbia Law School and the think tank Open Markets. She notes that authorities haven’t done a good job of articulating why privacy is an antitrust issue. Here, the German regulator makes it clear. “The FCO’s theory is that Facebook’s dominance is what allows it to impose on users contractual terms that require them to allow Facebook to track them all over,” Khan says. “When there is a lack of competition, users accepting terms of service are often not truly consenting. The consent is a fiction.”
According to the FCO, Facebook had 32 million monthly active users in Germany at the end of last year, amounting to a market share of more than 80 percent. The regulator argues this dominance gives it jurisdiction to oversee the company’s data collection practices.
“As a dominant company Facebook is subject to special obligations under competition law. In the operation of its business model the company must take into account that Facebook users practically cannot switch to other social networks,” said Mundt. “The only choice the user has is either to accept the comprehensive combination of data or to refrain from using the social network. In such a difficult situation the user’s choice cannot be referred to as voluntary consent.”
The FCO further argues that Facebook used its vast data collection to build up its market dominance, creating a feedback loop wherein people have no choice but to use the site and allow it to track them, which makes the site even more dominant and entrenches its privacy violations.
“The Bundeskartellamt [FCO] underestimates the fierce competition we face in Germany, misinterprets our compliance with GDPR and undermines the mechanisms European law provides for ensuring consistent data protection standards across the EU,” Facebook wrote in response to the ruling. They cite Snapchat, Twitter, and YouTube as direct competitors, hoping to illustrate that there isn’t lack of competition, and therefore the FCO has no standing to apply rules based on Facebook’s dominance. “Popularity,” they write, “is not dominance.”
The FCO disagreed, explaining that Snapchat, YouTube, and Twitter serve totally different functions from Facebook, and therefore can’t be seen as viable alternatives to the service.
Antitrust regulators used to consider data and privacy outside their purview. The old philosophy held that antitrust was concerned with price, and if a product was free then consumers couldn’t be harmed, says Maurice Stucke, antitrust expert and law professor at the University of Tennessee. “What we’re seeing now is those myths are being largely discredited.”
The most remarkable part of the ruling is the way it makes clear that privacy and competition are inextricably intertwined. “On the one hand there is a service provided to users free of charge. On the other hand, the attractiveness and value of the advertising spaces increase with the amount and detail of user data,” Mundt said. “It is therefore precisely in the area of data collection and data use where Facebook, as a dominant company, must comply with the rules and laws applicable in Germany and Europe.”
“This is the first instance where [regulators] are saying that because [a company has] such market power that consent is not freely given,” says Stucke.
The FCO ruling explains that the harm to users from Facebook’s data collection is not in cost but in “loss of control.” “They are no longer able to control how their personal data are used. They cannot perceive which data from which sources are combined for which purposes with data from Facebook accounts and used e.g. for creating user profiles,” the FAQ on the ruling reads. That combining of data gives it a “significance the user cannot foresee.”
That fact is underscored by people’s ignorance of Facebook data practices. Roughly 74 percent of American Facebook users surveyed recently by the Pew Charitable Trusts did not know that Facebook maintained profiles about their interests. Fifty-one percent of those surveyed said they weren’t comfortable with the practice.
But Facebook says that tracking people makes the services safer and better, and that the FCO misses how much the company has done in order to comply with the General Data Protection regulation passed by the European Union in 2018.
The FCO’s ruling, however, directly addresses the GDPR, writing that under its principles Facebook has “no effective justification for collecting data from other company-owned services and Facebook Business Tools or for assigning these data to the Facebook user accounts.” (Facebook Business Tools are the Like and Share buttons that appear all over the internet, and which allow Facebook to track you on sites they don’t own.) In other words, in addition to being anticompetitive in its view, the FCO believes Facebook hasn’t proven that data collection and bundling is in the best interest of every consumer and that its sites couldn’t function without it.
If Facebook loses the appeal, then Germany will become a grand experiment in whether the surveillance economy is actually essential to the operation of social media. Other Europeans and Americans may demand they are given the same option. “This ruling is really an icebreaker. Icebreakers break through the ice in order to lead the path for other vessels to follow,” says Stucke.
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Mark Zuckerberg promised to spend 2018 fixing Facebook. Last week, he addressed Facebook making you feel bad. Now he’s onto fake news.
Late Friday, Facebook buried another major announcement at the end of the week: How to make sure that users see high-quality news on Facebook. Facebook’s solution? Let its users decide what to trust. On the difficult problem of fixing fake news, Zuckerberg took the path with the least responsibility for Facebook, but described it as the most objective.
“We could try to make that decision ourselves, but that’s not something we’re comfortable with,” Zuckerberg wrote on his Facebook page. “We considered asking outside experts, which would take the decision out of our hands but would likely not solve the objectivity problem. We decided that having the community determine which sources are broadly trusted would be most objective.”
The vetting process will happen through Facebook’s ongoing quality surveys — the same surveys it uses to ask whether Facebook is a force for good in the world and whether the company seems to care about its users. Now, Facebook will ask users if they are familiar with a news source and, if so, whether they trust the source.
According to Zuckerberg, these surveys will help the truth about trustworthiness rise to the top: “The idea is that some news organizations are only trusted by their readers or watchers, and others are broadly trusted across society even by those who don’t follow them directly.”
It’s tempting to read a lot into Zuckerberg’s words, especially when the missive was so short on details. The perils are evident: Bad actors can game the survey! This only increases filter bubbles! After the year Facebook just had, how can you possibly think the masses can be objective?
Relying on users “lets them sidestep allegations of bias and take steps to fix it without directly becoming the dreaded ‘arbiter of truth,'” says researcher Renee DiResta, a technologist who has been studying the manipulation of social-media platforms.
Facebook did not immediately return a request for comment. There’s a good chance the new policy could cause as many problems as it solves. For the best known media brands, the survey could be a leg up. But what about niche publications that have narrow, but credible readerships? Does this mean that National Review or Slate are deemed untrustworthy because they have definitive points of view? Do they get put in the same bucket as Fox and MSNBC? What about BuzzFeed, where fun distractions and deep investigations all show up under the same URL?
Jason Kint, CEO of Digital Content Next, a trade association representing content companies, likes the idea of using brands as a proxy for trust. “But the details are really important,” he says. “What matters most is how this is being messaged. Facebook is clearly scrambling as the industry, Washington and the global community are losing trust in them. There is nothing worse to a company long-term.”
Zuckerberg also seemed to be in scramble mode last week when Facebook said it is reorienting the newsfeed to show users “meaningful interactions.” Only Friday, eight days later, did Zuckerberg explain the scope of that change for news publishers: the percentage of news on Facebook’s newsfeed will drop to 4 percent, from 5 percent.
This isn’t Facebook’s first attempt to address fake news. It’s previous effort flopped a few weeks ago. Facebook thought putting “disputed” flags on fake news stories would help out, but people only clicked more. Despite Zuckerberg’s reluctance to work with outsiders, experts probably could have warned him about human nature.
The survey strategy may fall prey to the same misunderstanding of people. Chris Tolles, the CEO of the media site Topix, is familiar with the problem. “As a news aggregator, we wrestled with this,” he says. “People who actually share news, news is a weapon, it’s not to inform, it’s to injure. It’s a social-justice identitarian, a person with an ax to grind, or it’s a journalist. They are not sharing news to inform, they are trying to convince you of something. It comes with a point of view.”
The root of the problem, according to Tolles: Trust is not objective. The interpretation of objectivity varies wildly between Democrats and Republicans and internet users themselves may not be a trustworthy bunch. Zuckerberg’s post also mentioned refocusing on “local” news, which Tolles says is just as fraught. “It’s vicious all the way down to the local crime report. I think that they’ve got an impossible task.”
Last week the company said it was stepping away from news. “This week, they said we’re going to try to do the hardest thing in the world, which is to try to decide which narrative is true,” says Tolles.