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Computers, Privacy & the Constitution
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Zoom litigation regarding a privacy issue.
Outline of the litigation
In the spring of 2020, a class action was filed against Zoom Video Communications (“Zoom”) claiming that Zoom (i) shared users’ personal data with third-party internet services (the privacy issue) and (ii) did not take appropriate measures and allowed hackers to interrupt online meetings through so-called “Zoombombing” (the security issue).
In August 2021, Zoom finally agrees to settle the lawsuit by paying a total of $85 million to users who have started using its application from March 30, 2016, to July 30, 2021.
What is the meaning of this class action?
(1) Does it have the meaning of compensation for victims (consumers)?
Although the total amount paid by Zoom is $85 million, the amount each Zoom user suffering a data breach and security breach can receive is very small (only $15, $25, or 15% of the subscription). Moreover, once personal information is leaked, such information may be diffused without limitation. It is impossible to calculate the amount of damages people whose personal information is leaked suffered, which means that such damages are not recoverable by monetary payment. Thus, this class action is virtually meaningless as compensation or relief for victims.
(2) The impact on the defendant company
(i) The materiality of an $85 million payout for Zoom
Generally speaking, $85 million is a large amount of money. However, thanks to the Covid-19, Zoom’s business has rapidly expanded over these two years.
According to Statista’s data, the total revenue of Zoom in the fiscal year 2019 (which means before the Covid-19 pandemic) was $330.52 million. However, in the fiscal year 2021, Zoom earned the almost same amount of money ($328.17 million) only in the first quarter. The total revenue in the fiscal year 2021 was $2699.89 million, which is about eight times as large as those in the fiscal year 2021 (https://www.statista.com/statistics/1105346/quarterly-revenue-zoom-worldwide/). For Zoom, $85 million is only 3% of the total revenue in the fiscal year 2021 which is unlikely to cause a serious impact on its business.
(ii) Is the class-action useful for discovering the truth?
Although the payout of the settlement money is not material for defendant companies, they are required to bear a lot of litigation costs and allocate human resources for the preparation of the class action. Also, a prolonged class action may cause serious reputation risk. Thus, even though the defendant believes that the claims in the class action are unreasonable, the incentive to settle the case by paying a certain amount of money is strong, especially for large companies with huge revenue.
For example, in 2012, Toyota agreed to pay more than $1 billion to settle a class-action lawsuit related to issues of unintended acceleration in its vehicles where plaintiffs claimed that Toyota’s electronics systems were at fault (https://www.nytimes.com/2012/12/27/business/toyota-settles-lawsuit-over-accelerator-recalls-impact.html), while United States Department of Transportation finally concluded that such systems were free from defect. Thus, class action litigation is not always useful for discovering the truth.
(3) Whom does the class-action benefit the most?
As stated above, the class action system does not work effectively as relief for victims, does not have a serious impact on defendant companies, and does not contribute to the discovery of truth.
So, who has the incentive to cause the class action? Who receives the benefits from it? The answer is lawyers.
In the Zoom class action case, the amount of lawyer fees is $21.25 million (https://legalnewsline.com/stories/619627763-zoom-class-action-nearly-final-lawyers-to-take-21m-if-settlement-approved). So, it may be no exaggeration to say that the class action is used as a tool by which lawyers squeeze money from large companies not for clients (consumers) but for their own sake.
Who is accountable for consumers’ privacy?
The damage arising from the leakage of personal information is unable to be compensated by monetary payment by its nature and the ex-post class-action does not provide meaningful relief. Thus, of course, consumers themselves must consider how to protect their privacy. However, in the Zoom case, many companies and schools instructed their employees or students to start using Zoom. Those employees and students had no other choice but to use the Zoom application because without using it, they could not work in their company or could not attend a class and graduate from their school. As a result of instruction by their employer or school, their personal information was shared with third-party internet services such as Facebook against their will.
Thus, the government, companies, schools and any other entities which have constituent members must understand that, in this information society, new technologies usually entail security and privacy risks. They must also understand that those who will be exposed to such risks by the introduction of the new technologies are not the entities themselves but their constituent members. Therefore, even if a certain new technology is very convenient and seems to have a great positive impact on their business, such entities should carefully consider the privacy and security risks arising from the service and investigate whether the service provider takes appropriate protection measures.
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