The Zhitong Finance App learned that Facebook's parent company Meta Platforms (META.US) will begin hearing a lawsuit filed by a coalition of multi-state attorneys general in California federal court on Wednesday. The lawsuit alleges that the company deliberately designed Facebook and Instagram to be addictive products for children; the case could have caused Meta to face huge compensation and force it to make extensive changes to its platforms.
Meta will go to court with 29 states, facing the biggest test of youth social media lawsuits so far. The trial will be held in Oakland and is expected to last seven weeks to hear allegations from Colorado, Kentucky, California, and New Jersey that Meta deliberately designed its platform to keep young users addicted and misled consumers about the platform's security. The trial will also deal with another allegation from 29 states that the company illegally collected and used data on children in violation of federal law.
The jury selection will take place on Wednesday, and hearings are scheduled to begin on August 18. Meta founder and CEO Mark Zuckerberg is expected to testify in court, as will Adam Mosseri, the head of Instagram.
In terms of potential compensation amounts and their impact on Meta, the trial is the biggest test of social media lawsuits against young people so far, and it also takes place in a context where the impact of social media on the overall values of young users is being increasingly re-examined around the world.
Meta said the maximum compensation amount could reach 1.4 trillion US dollars, which is close to the company's market value of 1.5 trillion US dollars, but US state attorneys general have yet to publicly disclose the specific amount of compensation they may seek.
The attorneys general of Colorado, Kentucky, California, and New Jersey also asked a judge to issue an order to force the company to implement age restrictions, remove the infinite scrolling feature, and make other adjustments to its platforms.
A Meta spokesperson said the company strongly disagreed with the allegations and was confident the evidence would prove that Meta has long been committed to supporting young users.
“We have listened to parents, collaborated with experts and law enforcement, and conducted in-depth research to understand the most important issues,” the spokesperson said in a statement.
The Oakland federal trial, which began on August 12, involved accusations in Colorado, Kentucky, California, and New Jersey that Facebook and Instagram were designed to indulge minors and mislead consumers, while 29 states also jointly filed federal claims relating to child data; the remedies sought by the states even included age restrictions, removing infinite scrolling and notifications, changing recommendation algorithms to prioritize “well-being” over engagement rates, and removing algorithms and AI models constructed using child data.
Meta itself stated in court documents that potential penalties could reach up to $1.4 trillion. This figure is clearly an extreme litigation scenario rather than a benchmark forecast. What is even more alarming is that Meta has recently faced a series of unfavorable rulings. The New Mexico case previously imposed a civil penalty of 375 million US dollars and later required it to bear 567 million US dollars and platform rectification measures, so this latest case is no longer a theoretical legal risk that can be completely ignored by the capital market.
Broader Liquidation
The lawsuit, filed by various states in 2023, stemmed from a multi-state joint investigation into the impact of Instagram and Facebook on young users. The investigation was announced after Meta whistleblower Frances Haugen disclosed the relevant information. Haugen testified to a US Senate committee in 2021 that the company knew its products might hurt young users and how to make these products safer, but chose not to implement these changes in order to pursue higher profits.
New Jersey Attorney General Jennifer Davenport said in a statement before the trial began: “As we alleged in the lawsuit, Meta knows its platform is harming children and young people, yet it continues to keep kids addicted to it. Our kids are not data points that can be monetized.”
A Reuters/Ipsos poll conducted last week found that the vast majority of Americans — 85% — agree that social media can be addictive to children, and 61% of respondents said social media companies need to be more strictly regulated.
Meta and other social media type tech companies are facing increasing pressure from legislators and courts. The trial, which began on Wednesday, is just one of thousands of cases brought by states, local governments, school districts, and individuals alleging that these companies' products hurt young users.
Meta said such a large number of lawsuits could seriously affect its business and financial results.
Both cases, which have previously entered the jury phase, have ruled against Meta; last week, a New Mexico judge ordered Meta to pay $567 million and make adjustments to its platform after finding that the company was responsible for exacerbating the state's children's mental health crisis. The company also reached a settlement with a Kentucky school district whose lawsuit was originally scheduled to be heard in June.
Meta generally denied the key allegations related to these cases and said the social media company has always been committed to protecting children on the platform. The company argues that since “social media addiction” is not an approved mental illness, it is impossible for the company to mislead consumers about whether its platforms are addictive.
Legal experts say the latest trial may be a key turning point for Meta, and recent successive court losses are further increasing the broader fundamental pressure the company is facing.
Eric Goldman, professor and co-director of the High Tech Law Institute at the University of Santa Clara Law School, said, “Massive damages awards and mandatory judicial orders over product functionality may pose a major threat to the survival of social media defendants.”
An extraordinary joint legal trial
On Monday, Meta's last-ditch effort to delay the trial and suspend the thousands of other lawsuits it is facing failed. A US court dismissed Meta's appeal against a ruling that allowed these cases to proceed on the grounds that the appeal was filed too early.
US District Court Judge Yvonne Gonzalez Rogers will preside over the trial and make a ruling after the trial ends in October. Rogers also previously presided over Elon Musk's lawsuit against OpenAI and its CEO Sam Altman. Rogers made an unusual decision to form an advisory jury to decide on specific issues and use those judgments as a reference for her final ruling. Advisory juries are rarely used; they decide on specific issues selected by the judge — but the judge can reject their findings when making a final decision.
In addition to demanding monetary compensation, states are also requiring Rogers to order changes to the platform across the US. States require Meta to implement age restrictions on users, remove all algorithms and AI models trained or built using children's data, and remove features such as infinite scrolling and notifications. In addition, states are also requiring courts to direct Meta to revise its algorithm for recommending content, prioritize user welfare over interactive engagement, set strict usage time limits for younger users, and implement a number of other changes.
This lawsuit is one of more than 3,000 lawsuits brought by school districts, individuals, and other entities in federal court against Meta, Snap Inc (SNAP.US), YouTube parent company Alphabet (GOOGL.US), and TikTok parent company ByteDance. These cases have been centrally referred to Rogers for trial. There are also more than 3,300 lawsuits, mostly by individuals, against these companies, which are currently being tried in Los Angeles state courts.
AI advertising machines meet regulatory black swans! The $1.5 trillion market capitalization faces regulatory repricing
As far as Meta's stock price is concerned, the real “lethal valuation” is not the latest headline of 1.4 trillion US dollars, but rather whether the court will touch the closed loop of “recommendation algorithm - user time - advertising inventory - AI advertising revenue generation model and conversion efficiency” feedback at the bottom of the Meta advertising machine.
If it ends up being just a one-time and affordable fine, Meta still has strong absorption capacity due to its huge operating cash flow and advertising profit pool; what is really dangerous is a nationwide ban on sexual conduct — such as limiting unlimited scrolling, notification frequency, time spent by teenagers, and even forcing changes to the content recommendation target function.
Meta's most important AI is not simply a big model; it supports Facebook, Instagram, and Reels' recommendation systems (Ad Ranking); if regulation forces optimization goals to shift from maximizing social media interactions to stricter happiness restrictions, then user time, ad impressions, and the commercial transformation efficiency that AI recommendation systems can achieve may all be structurally affected. This is why legal experts regard “huge compensation+judges directly stipulate product features” as a potential survival risk for social media companies.
Meta's latest Q2 revenue still reached 60.8 billion US dollars, a year-on-year increase of 28%. The cumulative number of daily active users of the Meta app family, including Facebook, reached 3.6 billion and is still achieving a 3% year-on-year increase. Ad display volume increased 14%, and average advertising prices increased 12%, which is enough to show that its core profit machine of “AI recommendations increase participation+AI advertising tools increase advertisers' ROI” is still very strong.
At the same time, the company has already included $2.4 billion in law-related expenses in Q2, highlighting that litigation costs have actually begun to enter the income statement. Therefore, the next key to determine Meta's valuation and basic outlook is not the extreme figure of “whether the final compensation is $1.4 trillion,” but rather three more tradable actual variables: whether the court found that the platform design itself was illegal, whether the nationwide ban actually touched on core algorithms and participation mechanisms, and whether the subsequent 3,000 federal cases and 3,300 California cases had an adverse precedent effect as a result.