Tech Stocks

Danger Ahead For Facebook

A tempest of political, legal and regulatory pressure is now building and cannot be thwarted


Facebook has endured a cavalcade of bad news over the past six months. These stories have run the gamut of co-founder, Chris Hughes, calling for the break-up of the company, to increasingly vocal bipartisan calls for reigning in the tech giant as well as continuing and unrelenting scrutiny from EU regulators.

The following is a general overview of the legal and regulatory risks the company presently faces.

For purposes of assessing the danger facing the company, shareholders and investors alike should note, that Facebook is fighting a two-front war between EU regulators, who have no compunction about levying substantive billion dollar fines against the company and American legislators and consumer protection advocates.

The two principal legal and regulatory threats the company faces are the specter of an anti-trust action and privacy abuse litigation at the state and federal level.

Many investors have been lulled into a false sense of complacency about the risks an anti-trust action poses for Facebook. Far too many analysts have made the specious argument that any case filed against Facebook can never prevail, because the service is free and Facebook provides multifarious benefits to consumers. How can a finding of consumer “harm” ever be established they ask? This has been the mantra, oft-repeated recently by many financial journalists, investors and analysts, who now fancy themselves anti-trust legal scholars.

Investors who subscribe to the “there is no anti-trust case against Facebook” school of thought, fail to recognize there is now growing acknowledgement from both parties, anti-trust legal scholars as well as free-market Republicans, that regulations need to adopt to the novel 21st century economic model of surveillance capitalism, for which Facebook is the leading paradigm.

Additionally, if one changes the principal focus from a consumer harm standard that underlies current anti-trust statutes and case law, to misappropriation of users’ data, the remedies available for an unfair and deceptive trade practices action becomes more pronounced.

Facebook is a different corporate animal than GM, Boeing or Oracle and ultimately will be viewed as such by legislators and regulators. The company presents an economic and legal paradox for anti-trust regulators. It has distorted and upended the traditional mechanisms of the free market because it offers no products for sale, yet it dominates an entire industry sector. Apple CEO, Tim Cook, perhaps explained it best, when he said Read more…

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