David Vladeck, FTC Director of the Bureau of Consumer Protection, made comments Tuesday, citing the U.S. District Court’s approval of a $22.5 million civil fine against Google for violating a consent order as “a clear victory for consumers and privacy,” and demonstrating that the Commission “will continue to ensure that its orders are obeyed, and that consumers’ privacy is protected.” The consent order settled charges that Google misrepresented privacy assurances to users of Apple’s Safari Internet browser in violation of a previous FTC settlement Order.

In its release, the FTC noted that the approval “resolves allegations that Google made misrepresentations to Safari users about the placement of advertising tracking cookies and serving of targeted advertisements in violation of the FTC’s October 2011 order against Google. Under the settlement, Google will pay a $22.5 million civil penalty, which is the largest in the FTC’s history for violation of an administrative order. Google must also maintain systems to expire the cookies it placed contrary to its representations to consumers.”

In the proceedings, the FTC provided little explanation as to how it came to the $22.5 million figure. In fact, the FTC specifically stated that calculating the figure in this instance was difficult to do and instead relied on the fact that this was the largest civil penalty ever levied for an order violation.

Consumer Watchdog filed an amicus brief arguing that the $22.5 million amount was too low because it is a de minimis amount of Google’s profits and revenues. The FTC responded by arguing that the determination of a civil penalty must involve a multi-faceted analysis, not just a company’s profits or revenues, taking into consideration: (1) the good or bad faith of the defendants; (2) the injury to the public; (3) the defendants’ ability to pay; (4) the desire to eliminate the benefits derived by the violations; and (5) the necessity of vindicating the authority of the FTC. The FTC went on to say that it never alleged in its complaint that the conduct at issue – misrepresenting that it would not place tracking cookies on Safari users’ computers – yielded significant revenues for Google. The FTC further argued that it is difficult to place a dollar value on the harm suffered by consumers as a result of the conduct, so placing a “per violation” calculation of an appropriate penalty is difficult to arrive at with precision.

Finally, the FTC noted that the $22.5 million figure was “many times over the FTC estimates the company earned from the alleged violation.” In a declaration, an FTC attorney stated that, “using a variety of sources, the FTC estimated that Google profited no more than $4 million from the alleged violation.” No additional explanation was provided as to where that $4 million figure came from, other than to say that negotiations with Google were extensive and lasted more than two months.

Why This Matters: Under the Federal Trade Commission Act, the potential fines for violation of an FTC Order can be astronomical if calculated literally in accordance with the formula in the statute. Such a calculation, however, has never been used, and this case helps practitioners and companies better understand how the FTC approaches such cases.