Photo: Jason Doiy/ALM


Facebook Inc. has set aside $3 billion for a settlement with the Federal Trade Commission over its consumer data privacy practices.

Menlo Park, California-based Facebook estimated a "probable loss" of $3 billion to $5 billion due to an ongoing FTC inquiry into its data protection and privacy practices in its first-quarter results 8-K filing Wednesday.

"The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome," Facebook's filing stated. A fine against Facebook would not be tax deductible, and the company stated its operating margin "would have been 20 percentage points higher, our effective tax rate would have been 14 percentage points lower" without the estimated settlement.

The FTC launched a non-public investigation into Facebook last month after a series of privacy-related scandals, including data breaches, which the agency claimed could violate a previous settlement it had with the company requiring Facebook to up its protection of consumer data.

Facebook is also under investigation in Europe for alleged General Data Protection Regulation violations. A $3 billion FTC fine against Facebook would be the largest the agency has levied on a U.S. tech company, and its largest data privacy-related fine.

Richard Newman, a data privacy and FTC compliance attorney at Hinch Newman, said in an email that "data privacy regulation remains atop the FTC’s enforcement policy agenda." But University of California, Berkeley, privacy law professor Chris Hoofnagle said "the money doesn’t matter" and the bigger question is "whether Zuckerberg himself is held liable."

The European Union and the state of California have both passed privacy-related regulations in recent years, with more U.S. states moving toward similar laws. Google Inc. currently holds the tech industry record for largest FTC penalty, settling charges it violated a privacy agreement with the agency for $22.5 million in 2012.

"The FTC is firmly and fully committed to using all of its tools to protect the privacy of consumers," Tom Pahl, acting director of the FTC's Bureau of Consumer Protection, said in a press release announcing the investigation last month. His agency declined to comment further. Facebook did not immediately respond to a request for comment.

Facebook announced Monday it hired the State Department's top lawyer, Jennifer Newstead, as its next general counsel. Newstead, a veteran of the George W. Bush administration who helped draft the Patriot Act, will replace Colin Stretch, Facebook's general counsel of nine years.

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