US Supreme Court hears Facebook's appeal against shareholder lawsuit

The US Supreme Court on Monday approved a request by Facebook to hear an appeal against a private lawsuit filed by shareholders in connection with the data breach by the consulting firm Cambridge Analytica. Facebook shareholders accuse the social media company of misleading them in 2017 and 2018 about the misuse of user data by the company and third parties. The lawsuit alleges that Facebook only mentioned the potential damage of a major data breach in hypothetical terms long after it became known.

According to a report by the Reuters news agency, the US Supreme Court judges accepted Facebook's appeal against a lower court's decision to allow the shareholder lawsuit filed in California to proceed. The court will therefore hear the case in its next session, which begins in October.

Shareholders sue over share price slump

Facebook shareholders filed a class action lawsuit against the company in 2018, claiming damages in an undisclosed amount. According to the statement of claim, Facebook had made "factually false and misleading statements" about company policy. The plaintiffs argued that Facebook should have disclosed that it had granted third parties access to the data of millions of users without their consent. Since the company had not done so earlier, they, the shareholders, had suffered huge losses. Following media reports that the British political consultancy Cambridge Analytica had used unlawfully collected Facebook user data in connection with Donald Trump's successful presidential campaign in 2016, Facebook's share price plummeted by around 20 percent. The Cambridge Analytica breach exposed the data of up to 87 million Facebook users.

The plaintiffs accused Facebook and high-ranking managers of the company of violating the Securities Exchange Act of 1934. They allegedly did so by making false and misleading statements in 2017 and 2018, including that user data could be compromised, even though Facebook was aware of Cambridge Analytica's privacy policy violations as early as 2015.

A US district court dismissed the shareholders' lawsuit in 2021, but the San Francisco-based 9th Circuit Court of Appeals later ruled in their favor. "The problem is that Facebook presented the risk of unauthorized access to or disclosure of Facebook user data as purely hypothetical, even though that very risk had already materialized," Reuters quoted from the grounds for the ruling at the time. In its application for leave to appeal, Facebook now argued that the Court of Appeal's decision would "force public companies to inform investors about past incidents that do not pose a known threat to the company".

Various investigations and fines

Facebook's careless handling of user data has come under scrutiny from the US authorities following the Cambridge Analytica scandal. The consultancy firm's data protection breach triggered government investigations into Facebook's data protection practices, various lawsuits and a hearing in the US Congress, at which Facebook co-founder and CEO Mark Zuckerberg was questioned. The data scandal has also had a personal legal repercussion for Zuckerberg. The Attorney General of Washington D.C. sued him. According to the lawsuit, Zuckerberg was "directly responsible" for creating the lax data protection rules that allowed the consultancy to collect user data without consent.

In connection with the Cambridge Analytica scandal, Facebook was ordered to pay fines of more than five billion US dollars to the US authorities in 2019. At the end of 2022, Facebook also paid USD 725 million to settle a separate class action lawsuit brought by Facebook users. Users had sued because their Facebook data was used unlawfully by Cambridge Analytica.

(akn)