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Facebook Inc. (FB) Faces German Photo Privacy Inquiry

Facebook Inc. (NASDAQ:FB), which has its Photo Tag Suggest feature on its user pages – where people who post photos on the social-networking site can “tag,” or identify, different people in photos and send notifications to those identified, is once again being investigated by German authorities due to privacy concerns. This is a re-opening of an investigation that started in the summer of 2011, and it involves the use of facial recognition technology.

Facebook Inc. (FB)

Hamburg, Germany, data-protection commissioner Johannes Caspar announced the re-opening of the investigation, which is responding to charges that Facebook Inc. (NASDAQ:FB) has been illegally compiling a photographic database of users without consent.  Under European data protection law, users must give their explicit consent to allow a company to compile such a database. Caspar said he was forced to re-open the investigation due to a lack of cooperation from Facebook.

“We have no other option but to reopen our investigation,” Caspar said. “We have met repeatedly with Facebook but have not been able to get their cooperation on this issue, which has grave implications for personal data.”

“We believe that the Photo Tag Suggest feature on Facebook is fully compliant with E.U. data protection laws,” Facebook Inc. (NASDAQ:FB) posed in a statement. “During our continuous dialogue with our supervisory authority in Europe, the Office of the Irish Data Protection Commissioner, we agreed to develop a best practice solution to notify people on Facebook about Photo Tag Suggest.”

Gary Davis, Ireland deputy data protection commissioner, said the country is conducting a new audit of Facebook Inc. (NASDAQ:FB) privacy practices. The agency was in discussions with Facebook about this issue and said the discussions have been productive. Facebook agreed to suspend the tagging feature for all new European users of Facebook as of July 1, and the remaining active users are being worked out with the company. Irish officials say they’re hopeful to receive a consent agreement from Facebook for all European users of the site. Caspar said he expects to make a formal recommendation by the end of September.

The maximum fine Caspar could impose on Facebook Inc. (NASDAQ:FB) is about $30,000, and even that could be appealed through the German court system. “The fines are ridiculously small for a company the size of Facebook,” said Ulrich Börger, a Hamburg privacy lawyer with the U.S.-based law firm Latham & Watkins. “The most important thing for Facebook is the reputational risk.”

The risk seems to be pretty small for some investors, as hedge-fund manager George Soros was reported to play a stake in Facebook Inc. (NASDAQ:FB) just this week – a piece to add to this billionaire’s portfolio.

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