Facebook hit with $15bn privacy lawsuit ahead of stock market debut
18 May 2012
18 May 2012
by Katherine Rushton
Facebook has been hit with a class-action lawsuit over privacy, just hours before the social network is due to make its $104bn Wall Street debut.
The company is being sued for $15bn - almost as much as the $16bn raised in its record breaking initial public offering - for tracking users against their wishes, even after they have logged out of their Facebook accounts. The lawsuit, filed today in a Federal Court in San Jose, California, combines 21 separate cases across the US and could have far-reaching ramifications for the
social network at a critical time.
Facebook priced its flotation at $38 a share last night, valuing the company founded by 28-year old Mark Zuckerberg at $104bn. It will begin trading at 4pm today, shortly after the opening of the Nasdaq stock exchange in New York. As a public company, Facebook will be expected to grow its advertising revenues very rapidly, putting it under considerable pressure to collect more and more user data to help it target its ads.
The company made 85pc of its $3.71bn of revenues from advertising last year but that figure appears paltry in the context of Facebook's extraordinary reach. The social network has 900m users worldwide. Many analysts and experts are sceptical about the effectiveness of paid-for advertising on Facebook.
Sir Martin Sorrell, chief executive of the world's biggest advertising group, WPP, has said he has "fundamental" doubts over whether Facebook provides the right "context" for ads, and earlier this week General Motors, the US car manufacturer, said it would stop buying ads on the social network.
However, Facebook argues that its ability to carefully target its adverts makes them increases their value. If, for example, a female user changes her relationship status to "engaged", Facebook is able to tap into that and ensure lots of adverts for wedding dresses and other bridal services appear on her Facebook page.
If the claimants are successful in their $15bn case against Facebook, they could prevent Facebook from collecting so much data and severely impede its ability to grow advertising revenues. "This is not just a damages action, but a groundbreaking digital-privacy rights case that could have wide and significant legal and business implications," said David Straite, a partner at Stewarts Law, the US law firm that is representing the companies in the class-action lawsuit.