Today, opening statements will be heard in an Oakland, California, courtroom in a landmark trial that could determine whether Meta Platforms, owner of Facebook and Instagram, designed its social media platforms to addict younger users, despite the company being aware of the danger its social media platforms presented to mental health.
If found guilty, Meta could be on the hook for more than a trillion dollars in financial penalties and also be forced to change how fundamental parts of Facebook and Instagram operate.
Those existential threats appear to have investors concerned, as the company’s stock price (Nasdaq: META) is down this week. Here’s what you need to know.
What’s happening?
In October 2023, multiple states sued Meta, alleging that the company deliberately designed its social media platforms, Facebook and Instagram, to be addictive and exploited younger users’ vulnerabilities to achieve compulsive use.
Since the suit was brought, Meta has sought to have it dismissed and delayed—actions that all ultimately failed.
Now, opening statements in the case against Meta will finally be heard today in the U.S. District Court for the Northern District of California.
Twenty-nine states are participants in the lawsuit against Meta, which is being led by the attorneys general of California, Colorado, Kentucky, and New Jersey.
The other 25 states taking part in the lawsuit include Arizona, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Minnesota, Nebraska, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Virginia, Washington, West Virginia, and Wisconsin.
“Nearly three years ago, we took action because we believed Meta was putting profits ahead of the health and safety of our kids. Now we are ready to present the evidence and make our case,” Colorado Attorney General Phil Weiser said in a statement posted yesterday.
Weiser continued, “Meta knew its platforms could harm young people, yet continued practices designed to keep them hooked — sacrificing sleep, being distracted in school, and even considering suicide — because more time online meant more money for Meta.”
What are the allegations against Meta?
According to the Colorado AG, there are numerous allegations against Meta in the landmark social media addiction trial, including that the company:
- “deliberately designed its platforms to exploit young users’ vulnerabilities, foster compulsive use, and maximize the time young people spend on Facebook and Instagram”
- “knew about harms to young users but deceived users, parents, and the public about the risks”
- “illegally collected personal information from children under 13 without their parents’ consent, in violation of the federal Children’s Online Privacy Protection Act.”
What has Meta said about the case?
Ahead of the trial, Meta issued a brief statement on its website, stating:
“The State AGs may call this a landmark case, but their limited claims are unsubstantiated and their financial demands are vastly disproportionate. The AGs offer no proof anyone in their states was misled, claim benign features like having an additional Instagram account somehow harmed their residents, and attempt to penalize Meta for industry-wide challenges like age verification. Rather than sticking to the facts or the law, the states have instead decided to chase an outlandish payout. We stand by our record of creating strong protections for teens, and look forward to making our case in court.”
Expect to hear much more from Meta in the trial’s opening statements today and beyond.
The trial is expected to last between six and eight weeks. During that time, Meta’s most powerful executives, including CEO Mark Zuckerberg and Instagram CEO Adam Mosseri, are expected to take the stand.
How bad could it be for Meta if the company loses?
Very bad. First, there are the financial penalties. As noted by Yahoo News, those penalties could be as high as $1.4 trillion. To put that figure in perspective, Meta’s current market capitalization is around $1.5 trillion. If Meta lost and it was hit with the highest possible financial penalties, it could theoretically go bankrupt.
However, this outcome is very unlikely. In practice, any fine Meta would be liable for would likely be allowed to be paid over years if not decades. And the final fine, if Meta is found liable, could be much smaller: in the tens or hundreds of billions.
But perhaps more destructive to Meta than any fine would be the fact that, should the company lose, it may be legally required to change the way Facebook and Instagram operate.
If any features are indeed found to be deliberately addictive-forming, a judge could order them scrapped. Features under scrutiny in the trial include likes, infinite scroll, and autoplay, according to Yahoo News.
Eliminating these features could reduce engagement on Facebook and Instagram, ultimately lessening the time people spend on the platforms and, in turn, the advertising revenue Meta can generate from them.
How has META stock performed?
Recently, Meta’s stock price has taken a beating. Some of that is due to business factors, such as concerns about AI-related capital expenditures.
But the potential consequences Meta could face to its bottom line and the fundamental way its apps like Facebook and Instagram operate are also weighing on investors’ minds.
Yesterday, just a day before opening statements are set to be heard, Meta’s stock price dropped more than 3.5% to $568.97. As of the time of this writing, META shares are down nearly 1% in premarket trading.
But looking back farther, things are even worse for Meta. Since the year began, Meta has lost more than 13% of its value. And over the past 12 months, META shares are down more than 27%.
That makes Meta the worst-performing Magnificent 7 stock over the past year. Meanwhile, the tech-heavy Nasdaq, on which Meta trades, has seen growth of more than 25% during the same period.