Yahoo threatened with trillion-dollar fine over access to user data

Yahoo says the US govt threatened to fine the company $250,000 a day if it did not comply with demands to go along with an expansion of surveillance laws by surrendering online information. Photo / AP

For an illuminating glimpse of government power in action, it's hard to beat the fines the US Justice Department threatened to level against Yahoo if it didn't comply with a secret and sweeping surveillance request in 2008.

News coverage of the case, for which documents were unsealed last week, reported the proposed fines as $250,000 a day. But there was also a clause that called for a doubling of the amount each week if Yahoo refused to comply. It was more than enough to bankrupt the company after just a few months.

Yahoo's longtime outside counsel, Marc Zwillinger, who was lead attorney in the unsuccessful fight against the government's data demand, calculated the cost of resistance at more than $25 million after the first month and $400 million in the second month.

"And practically speaking," Zwillinger noted in a blog post published on Monday, "coercive civil fines means that the government would seek increased fines, with no ceiling, until Yahoo complied."

The case was a foundational legal step in the government's construction of PRISM, the surveillance program that gives the National Security Agency extensive access to records of online communications by users of Yahoo and other US-based technology companies.

What most bothered Yahoo was the lack of individual search warrants and court review for people outside the United States - something the company argued was required by the Fourth Amendment of the Constitution.

Yahoo lost its case before the Foreign Intelligence Surveillance Court in April 2008, and as the company prepared to appeal to a higher court, the government requested that the daily fines begin. Rather than pay them, the company began furnishing the requested user data while it continued its legal fight. The company eventually lost the appeal.

The Justice Department and the Office of the Director of National Intelligence defended the government's handling of the case in a statement last week, pointing out that the PRISM program included "safeguards" against privacy violations.

On Monday, the Justice Department issued a statement about the threatened Yahoo fine, saying, "Our responsibility is to protect national security by leveraging all lawful processes. The Government's motion for civil contempt was meant to secure compliance with a lawful court order. The Government only sought penalties after Yahoo litigated its position in court and then refused to comply with the court order rejecting the Company's legal challenge and requiring the company's compliance as a matter of law."

Had Yahoo continued resisting the government's order while it made the appeal, the company never could have paid its legal bills - or anything else. The equivalent of Yahoo's total revenue for 2008, a healthy $7.2 billion, would have been gone by the end of the 12th week. If the company could have somehow found the cash, the fine could have paid off the entire US debt - about $9.5 trillion at the time - in the fifth month.

At the six-month mark, the relentlessly doubling fine would have equaled $117 trillion. Depending on the calculation you use, the fine would have exceeded the total dollar value of the entire Earth (including economic assets and the physical value of the planet itself) in either the eighth or ninth month.

At the end of the year, the total would have been $7.9 sextillion. That's equal to a stack of $100 bills so high that it would go back and forth to the sun 28,769 times (if that many $100 bills actually existed).

As a publicly traded company, Yahoo would have been required by federal securities law to report substantial government fines to its shareholders - something that would have been difficult to do, given that the Foreign Intelligence Surveillance Court classified the order and the court case.

The government motion requesting the fine called for it to be declassified in 2033 - 25 years later. The controversy sparked by the disclosures by former NSA contractor Edward Snowden prompted an accelerated effort to declassify the case, which is what led to last week's release of more than 1,500 documents from the legal struggle.

- Washington Post