Case3 12-cv-04177-SI Document30 Filed11 16 12 Page1 of 9 1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 UNITED STATES OF AMERICA 9 Plaintiff United States District Court For the Northern District of California 10 11 No CV 12-04177 SI ORDER APPROVING STIPULATED ORDER FOR PERMANENT INJUNCTION AND CIVIL PENALTY JUDGMENT v GOOGLE INC 12 Defendant 13 14 On August 8 2012 the United States filed a complaint alleging that Google Inc “Google” 15 violated a consent order with the Federal Trade Commission “FTC” The next day Google and the 16 United States filed a Proposed Stipulated Order for Permanent Injunction and Civil Penalty Judgment 17 “Proposed Order” The Court granted amicus curiae Consumer Watchdog leave to file a brief 18 opposing the Proposed Order and to file supplemental briefing On November 16 2012 the Court 19 heard argument on the Proposed Order Having carefully considered the arguments of counsel and the 20 papers submitted the Stipulated Order for Permanent Injunction and Civil Penalty Judgment is 21 APPROVED for the reasons set forth below 22 23 24 BACKGROUND 1 Factual Background 25 This action arises from Google’s alleged violation of a previous consent order with the FTC 26 In the prior action the FTC alleged that when Google launched its social networking tool Google Buzz 27 it used Gmail users’ private information despite telling those users it would only use that information 28 for Gmail services Complaint ¶¶ 6-7 The FTC also alleged that Google misrepresented to its Gmail United States District Court For the Northern District of California Case3 12-cv-04177-SI Document30 Filed11 16 12 Page2 of 9 1 users that it would not automatically enroll them in the Buzz network and that they could control what 2 information would be public on their profiles Id 3 In October 2011 the FTC settled its Buzz investigation with Google through a consent order that 4 prohibited Google from future misrepresentations regarding 1 its collection and use of private 5 information and its customers’ control over that information and 2 its membership and compliance 6 with privacy or security programs Id at ¶ 8 7 In the instant case the FTC alleges that Google violated the first part of the Buzz consent order 8 through the placing of cookies on users’ computers without their knowledge Google uses cookies to 9 collect information from users’ web browsing activity and uses this information to tailor its 10 advertisements Id at ¶¶ 17-22 Google allows users to opt out of these cookies through an “opt-out 11 button” they can click in their preferences or through downloading an “opt-out cookie” plugin Id at 12 ¶ 33 Google does not offer the plugin to users of the Safari internet browser but it assured users that 13 the Safari default settings would block cookies Id at ¶¶ 36-40 The FTC alleges that Google overrode 14 the Safari software that blocked cookies and secretly collected cookies from Safari users Id at ¶¶ 41- 15 48 The FTC alleges that the misrepresentations of collecting private information and using targeted 16 advertisements violated the first part of the Buzz consent order Id at ¶¶ 49-54 17 The FTC also alleges that Google violated the second part of the Buzz consent order Google 18 represents that it is a member of the Network Advertising Initiative “NAI” and in compliance with 19 NAI’s self-regulatory code of conduct Id at ¶¶ 15-17 NAI’s code requires that members post notices 20 specifying its data collection processes Id The FTC alleges that Google’s use of Safari cookies 21 without informing its users violated the NAI code and thus violated the second part of the Buzz consent 22 order Id at ¶ 55-57 23 24 2 The Proposed Order 25 In the Proposed Order Google and the United States stipulate that the Court has jurisdiction and 26 that venue is proper Google “denies any violation of the FTC Order ” and states that it stipulates to the 27 Proposed Order “freely and without coercion ” The Proposed Order outlines three requirements for 28 Google First Google must pay a civil penalty of $22 5 million Second until February 15 2014 2 Case3 12-cv-04177-SI Document30 Filed11 16 12 Page3 of 9 1 Google must maintain systems that delete Google cookies from Safari browser users Third Google 2 must report to the FTC within twenty days of February 15 2014 setting forth how it is in compliance 3 with the Proposed Order 4 Amicus curiae Consumer Watchdog made three objections to the Proposed Order 1 the 5 injunction is inadequate and not “permanent ” 2 the civil penalty of $22 5 million is too small and 3 6 Google should be forced to admit liability 7 United States District Court For the Northern District of California 8 LEGAL STANDARD 9 Approval of a proposed consent decree is within the discretion of the Court United States v 10 Oregon 913 F 2d 576 580 9th Cir 1990 A court reviews a consent decree to determine whether it 11 is “fundamentally fair adequate and reasonable ” Id While a consent decree “must conform to 12 applicable laws it need not impose all the obligations authorized by law ” Oregon 913 F 3d at 13 580 14 The Court’s review of the proposed consent decree is informed by the public policy favoring 15 settlement See United States v Comunidades Unidas Contra La Contaminacion 204 F 3d 275 280 16 1st Cir 2000 The Court also grants additional deference where the decree has been negotiated by a 17 governmental agency that is an expert in its field and must act on behalf of the public interest United 18 States v Chevron 380 F Supp 2d 1104 1111 N D Cal 2004 However when reviewing a proposed 19 consent decree the Court must independently evaluate its terms and avoid giving a “rubber stamp 20 approval ” United States v Montrose Chem Corp of Cal 50 F 3d 741 747 9th Cir 1995 quoting 21 City of Detroit v Grinnell Corp 495 F 2d 448 462 2d Cir 1974 22 In applying the “fair adequate and reasonable” standard courts examine both procedural and 23 substantive fairness United States v Montrose Chem Corp of California 50 F 3d 741 746 9th Cir 24 1995 United States v Cannons Eng’g Corp 899 F 2d 79 86 1st Cir 1990 Chevron 380 F Supp 25 2d at 1110-11 With regard to procedural fairness courts determine whether the negotiation process was 26 “fair and full of adversarial vigor ” United States v Telluride Co 849 F Supp 1400 1402 D Colo 27 1994 citations and internal quotations omitted If the decree was the product of “good faith 28 arms-length negotiations ” it is “presumptively valid and the objecting party has a heavy burden of 3 United States District Court For the Northern District of California Case3 12-cv-04177-SI Document30 Filed11 16 12 Page4 of 9 1 demonstrating the decree is unreasonable ” Oregon 913 F 2d at 581 However “the district court must 2 ensure that the agreement is not a product of collusion ” United States v Colorado 937 F 2d 3 505 509 10th Cir 1991 4 With respect to substantive fairness the district court does not determine whether “the settlement 5 is one which the court itself might have fashioned or considers ideal ” Cannons Eng’g Corp 899 F 2d 6 at 84 Instead the “court’s approval is nothing more than an amalgam of delicate balancing gross 7 approximations and rough justice ” Oregon 913 F 2d at 581 internal quotations omitted “The court 8 need only be satisfied that the decree represents a reasonable factual and legal determination ” Id 9 internal quotation omitted 10 Consumer Watchdog argues that the Court’s review must consider not just whether the 11 settlement is “fair adequate and reasonable ” but also in regulatory settlements whether the settlement 12 promotes the public’s interest It cites to the FTC Act which was amended to expressly empower the 13 Commission to protect the public interest See H R Rep No 75-1613 at 3 1937 see also Johnson 14 Products Co v FTC 549 F 2d 35 38 7th Cir 1977 “The Commission unlike a private litigant must 15 act in furtherance of the public interest ” The only case that Consumer Watchdog relies on for its 16 proposition that there should be a separate public interest inquiry is a district court case from the Second 17 Circuit FTC v Circa Direct LLC CIV 11-2172 RMB AMD 2012 WL 2178705 D N J June 13 18 2012 However the Second Circuit’s law on the public interest prong is still in flux and is currently 19 not as broad as envisioned by the Circa Direct court See U S S E C v Citigroup Global Markets Inc 20 673 F 3d 158 163 n 1 2d Cir 2012 finding that the district court should consider only whether the 21 terms of the injunctive provisions do not harm the public interest not whether the terms of the entire 22 settlement harm the public’s interest More importantly the Court finds that the law in the Ninth 23 Circuit does not include a separate public interest inquiry The Ninth Circuit has held that even if a 24 federal agency is required to serve the public’s interest the district court erred when it conditioned 25 approval of a consent decree “on what it considered to be the public’s best interest ” S E C v Randolph 26 736 F 2d 525 529 9th Cir 1984 emphasis in original It found that “ i nstead the district court 27 should have deferred to the agency’s decision that the decree is appropriate and simply ensured that the 28 proposed judgment is reasonable ” Id 4 Case3 12-cv-04177-SI Document30 Filed11 16 12 Page5 of 9 1 2 DISCUSSION 1 3 United States District Court For the Northern District of California 4 Procedural Fairness For the procedural fairness prong the Court looks to whether the consent decree was the product of “good faith arms-length negotiations ” Oregon 913 F 2d at 581 5 Here the FTC conducted an independent investigation into Google’s conduct before it began 6 any settlement discussions Declaration of Megan A Bartley “Bartley Decl ” ¶ 2 It was the FTC not 7 Google which drafted the initial Proposed Order Id at ¶ 3 The FTC and Google engaged in extensive 8 negotiations that lasted over two months and they debated the details of the settlement almost daily 9 Id at ¶ 4 see United States v Pac Gas Elec 776 F Supp 2d 1007 1025 N D Cal 2011 10 upholding procedural fairness when negotiations lasted 90 days The FTC negotiated over every 11 substantive provision based on what it determined was in the public’s best interest Bartley Decl ¶¶ 5 12 7-8 13 Because of the length and vigor of the negotiations and the arms-length process in which they 14 were conducted the Court finds that there was procedural fairness in the negotiation of the Proposed 15 Order 16 17 2 Substantive Fairness 18 If the court finds that there was procedural fairness then the consent decree is “presumptively 19 valid and the objecting party has a heavy burden of demonstrating the decree is unreasonable ” Oregon 20 913 F 2d at 581 Consumer Watchdog attacks the substantive fairness of the Proposed Order arguing 21 that the injunction is inadequate the civil penalty is too small and that Google should be forced to admit 22 liability 23 24 A 25 Consumer Watchdog argues that the injunction in the Proposed Order is inadequate for several 26 reasons First it argues that Proposed Order is inadequate because it fails to include a “permanent 27 injunction ” since the final remedial relief lasts only until February 15 2014 However a “permanent 28 injunction” is merely an injunction that occurs after a final hearing on the merits as distinguished from Adequacy of the Injunction 5 United States District Court For the Northern District of California Case3 12-cv-04177-SI Document30 Filed11 16 12 Page6 of 9 1 a preliminary injunction Black’s Law Dictionary 855 9th ed 2009 “Despite its name a permanent 2 injunction does not necessarily last forever ” 3 Second Consumer Watchdog argues that Google should be enjoined from further violating the 4 Buzz consent order However such an injunction is unnecessary and duplicative The Buzz consent 5 order already prohibits Google future misrepresentations regarding its customers’ private information 6 The FTC has shown that it can enforce violations of the Buzz consent order as it is doing in the instant 7 action Because Google remains subject to the Buzz consent order an injunction to prohibit future 8 violations of that order is unnecessary 9 Third Consumer Watchdog argues that the injunction is inadequate because it allows Google 10 to continue to profit from the information it has gathered from the Safari cookies The injunction 11 requires Google to “expire” the cookies it set for Safari users in alleged violation of the Buzz consent 12 order Consumer Watchdog argued in its supplemental reply brief1 that the expiration of a cookie does 13 not necessarily delete the information contained on the cookie Thus although Google is enjoined from 14 collecting new information it may still keep and use the information it has previously collected from 15 the Safari cookies 16 At the hearing both the FTC and Google asserted that these concerns had been considered and 17 dismissed in the course of negotiating the settlement The parties state that Google would be unlikely 18 to use the information from the Safari cookies for several reasons First because the data is old it 19 contains dated – or outdated – information of very low value Further Google has now “anonymized” 20 the IP addresses and therefore the data cannot reliably be linked to individuals More generally the 21 FTC considered and rejected many more stringent injunctions because the risk that they would hamper 22 Google’s ability to protect consumers from data security and malware vulnerabilities outweighed the 23 benefits to the public Bartley Decl ¶ 7 The FTC determined that the injunction it crafted “sufficiently 24 protects consumers from ongoing harm without exposing them to additional risks ” United States’ 25 Response to Consumer Watchdog’s Amicus Curiae Brief 8 In such situations “the courts should pay 26 deference to the judgment of the government agency which has negotiated and submitted the proposed 27 1 28 Because this argument was first included in the reply brief neither the United States nor Google had a chance to respond in briefing 6 Case3 12-cv-04177-SI Document30 Filed11 16 12 Page7 of 9 1 judgment ” Randolph 736 F 2d at 529 citations omitted see also Chevron U S A Inc v Natural 2 Resources Defense Council Inc 467 U S 837 866 1984 3 The Court finds that the injunction is fair adequate and reasonable With the Buzz consent order 4 in place the injunction need only address the specific harm from the Safari cookies Here the 5 injunction specifically requires Google to maintain systems to expire Safari cookies and creates a 6 compliance reporting mechanism United States District Court For the Northern District of California 7 8 B 9 Consumer Watchdog argues that the civil penalty of $22 5 million is an insufficient amount to 10 enforce compliance with the Buzz consent order It argues that this is a de minimis amount of Google’s 11 advertising revenues It also argues that the statutory maximum would be $16 000 for each violation 12 and thus could far exceed the $22 5 million See Revised Reply Memorandum of Points and Authorities 13 in Opposition to the Entry of Proposed Stipulated Order for Permanent Injunction and Civil Penalty 14 7 “Even if one-tenth of one percent of Safari users saw the misrepresentation the statutory penalty 15 would exceed $3 billion ” Adequacy of the Civil Penalty 16 The FTC argues that the Commission’s determination of an appropriate civil penalty is not just 17 based on revenue or statutory penalties but is a multi-faceted analysis See United States v Danube 18 Carpet Mills Inc 737 F 2d 988 993 11th Cir 1984 noting that the criteria for assessing the civil 19 penalty should include “ 1 the good or bad faith of the defendants 2 the injury to the public 3 the 20 defendants’ ability to pay 4 the desire to eliminate the benefits derived by the violations and 5 the 21 necessity of vindicating the authority of the FTC” According to the FTC the $22 5 million fine is the 22 largest fine ever imposed on a company for violating an FTC order Moreover the complaint never 23 alleged that consumers suffered any monetary harm or that the Safari cookies yielded significant 24 revenues for Google Consumer Watchdog’s citations to cases with larger penalties are unpersuasive 25 to show that the proposed penalty is unreasonable In Circa Direct 2012 WL 2178705 the FTC’s $18 26 million disgorgement order was based on consumer loss rather than a civil penalty and the defendants 27 were ordered to surrender all of their remaining assets because the FTC found that all of the company’s 28 revenue was tied to the fraud Similarly in FTC v Trudeau 579 F 3d 754 762 7th Cir 2009 the 7 Case3 12-cv-04177-SI Document30 Filed11 16 12 Page8 of 9 1 district court granted a monetary award of $37 6 million based on “a reasonable approximation of the 2 loss consumers suffered as a result of defendant’s deceptive infomercials ” Unlike in Circa Direct or 3 Trudeau the instant case does not contain allegations of large amounts of consumer loss or Google 4 profit 5 Accordingly Court finds that the civil penalty is fair adequate and reasonable 6 7 C 8 Finally Consumer Watchdog argues that Google’s denial of liability in the consent decree 9 contravenes the public’s interest It alleges that the denial of liability allows Google to put its own spin United States District Court For the Northern District of California 10 Google’s Denial of Liability on the facts which will confuse consumers relying on its statements when making privacy choices 11 However Consumer Watchdog’s position that a consent decree requires an admission of liability 12 is contradicted by legal history and precedent See e g Swift Co v United States 276 U S 311 327 13 1928 finding that the contention that a consent decree could not be upheld because there was no 14 admission of guilt “ignores both the nature of injunctions already discussed and the legal implications 15 of a consent decree” More recently the Second Circuit strongly disapproved of a district court’s 16 rejection of a consent decree when that court’s primary basis for the rejection was the lack of an 17 admission of liability Citigroup 673 F 3d at 163-65 finding that in requiring an admission of liability 18 the district court prejudged the merits of the case assumed that the SEC could win at trial or that 19 Citigroup would be willing to settle if it admitted liability did not give deference to the SEC’s policy 20 judgment and did not consider the agency’s discretionary assessment of its prospects or of the optimal 21 allocation of its limited resources Moreover as the Second Circuit noted “ r equiring such an 22 admission would in most cases undermine any chance for compromise ” Id at 165 23 The only case that Consumer Watchdog cites in support of its argument that the Proposed Order 24 must have an admission of liability is Circa Direct which noted that learning the truth of the 25 defendants’ alleged deceptive conduct may be an important matter of public concern Circa Direct 26 2012 WL 2178705 at 6 However the Circa Direct court later approved the consent decree without 27 an admission of liability relying on Citigroup and giving deference to the FTC’s determination that 28 requiring admission of liability would force it to go to trial which would result in a significant 8 Case3 12-cv-04177-SI Document30 Filed11 16 12 Page9 of 9 1 expenditure of time and resources without much gain Fed Trade Comm’n v Circa Direct LLC CIV 2 11-2172 RMB AMD 2012 WL 3987610 at 6-7 D N J Sept 11 2012 Moreover as explained supra 3 the Circa Direct court based its reasoning on a separate public interest inquiry which the Ninth Circuit 4 does not follow Indeed courts in this circuit have upheld many agreements without an admission of 5 wrongdoing and Consumer Watchdog fails to cite a single case that does not See e g Turtle Island 6 Restoration Network v U S Dept of Commerce 834 F Supp 2d 1004 D Haw 2011 aff’d 672 F 3d 7 1160 9th Cir 2012 S E C v Olins 762 F Supp 2d 1193 N D Cal 2011 see also Maher v Gagne 8 448 U S 122 126 n 8 1980 noting that “ a s is customary the consent decree explicitly stated that 9 “ n othing in this Consent Decree is intended to constitute an admission of fault by either party to this United States District Court For the Northern District of California 10 11 12 action ” Accordingly Court finds the Proposed Order with Google’s denial of liability to be fair adequate and reasonable 13 14 CONCLUSION 15 For the foregoing reasons the Court hereby finds that the Proposed Order is both procedurally 16 and substantively fair adequate and reasonable Accordingly the Court APPROVES the Stipulated 17 Order for Permanent Injunction and Civil Penalty Judgment Docket No 3 18 19 IT IS SO ORDERED 20 21 Dated November 16 2012 SUSAN ILLSTON United States District Judge 22 23 24 25 26 27 28 9