Meta Faces Its Big Tobacco Moment

For years, the largest social media companies have faced accusations that their platforms damage young people. They have been hauled before politicians, criticised by parents and investigated by regulators. Yet the basic business model behind Facebook, Instagram, TikTok and YouTube has remained remarkably intact.

That may now be changing.

A federal trial underway in Oakland, California, could become one of the most important legal tests Meta has faced. The case is not simply asking whether harmful material appeared on Facebook or Instagram. It goes much further, questioning whether Meta deliberately designed its platforms to keep young people using them for longer, while failing to tell the public enough about the risks.

For Meta, the immediate threat is potentially enormous financial penalties. The greater danger, however, may be what happens if a court decides the mechanics used to drive engagement are themselves part of the problem.

The case against Meta

California, Colorado, Kentucky and New Jersey are leading claims that Meta violated state consumer protection laws by misleading users about the safety of Facebook and Instagram. Claims from 29 states also allege that Meta improperly collected and used data belonging to children under 13, in breach of the federal Children’s Online Privacy Protection Act.

Opening statements began on Tuesday, with the trial expected to last around six weeks. Former Meta engineer Arturo Bejar was the first witness and resumed his evidence on Wednesday. He has accused the company of failing to respond adequately to internal warnings about the experiences of young users. Meta disputes those allegations and says it has made substantial efforts to protect teenagers.

At the heart of the states’ case is a simple accusation. They say Meta understood how features within its platforms affected younger users, designed products to encourage continued use and then failed to give consumers a true picture of the possible consequences.

Meta says that presents a distorted account of what happened.

The company argues that adolescent mental health is complicated, that there is no simple causal link between social media and conditions such as depression, and that many of the documents being used against it are being stripped of their wider context. There is scientific support for some of that caution. A National Academies review concluded that existing research did not support saying social media causes changes in adolescent health across the population, despite finding associations between some forms of use and poorer outcomes.

That distinction could prove critical.

Why Section 230 may no longer be enough

For decades, America’s technology companies have benefited from Section 230 of the Communications Decency Act. In simple terms, it has provided broad protection from being treated as the publisher of material posted by users.

The states are trying to get around that protection by attacking something different. Their argument centres on Meta’s own conduct, product design and public statements rather than simply the photographs, videos or messages uploaded by people using its services.

Meta tried to stop the case on Section 230 grounds, but the Ninth Circuit dismissed its appeal on 10 August and refused to halt the trial. A federal judge had already rejected Meta’s attempt to secure summary judgment and end the case before it reached court.

This does not mean Section 230 has disappeared, nor does it mean Meta cannot raise those arguments again. But it does mean the protection that has helped shape the internet for almost 30 years has not prevented a court from examining the way the product itself was designed.

That could have consequences far beyond Facebook.

The real financial threat

Much has been made of the possible penalties.

Meta has said calculations put forward in the proceedings could result in penalties as high as $1.4 trillion if the states ultimately prevail. The attorneys general have not publicly disclosed a final figure they intend to seek, and Meta has described the calculation as having no basis in fact or law.

A number anywhere close to that level would obviously be extraordinary. Yet concentrating only on the damages risks missing the more important threat to Meta’s business.

Meta is an advertising company built around engagement.

In the second quarter of this year it generated $60.8 billion in revenue, with $59.36 billion coming from advertising. Its family of apps had an average 3.6 billion daily users in June, while advertising impressions increased by 14 per cent from a year earlier and the average price of an advert rose 12 per cent.

That is a remarkable machine. It works because billions of people keep returning, scrolling, watching, liking, sharing and interacting.

If courts begin limiting the tools used to encourage that behaviour among younger users, the financial question is no longer simply how much Meta must pay. It becomes whether regulation starts reducing the amount of engagement Meta can monetise.

Infinite scrolling, notifications, visible like counts and other features may look trivial when viewed individually. Collectively, they form part of the architecture that keeps people inside an app.

Restricting them may mean fewer sessions, less time spent on the platform, fewer advertising impressions and potentially less information with which to target those advertisements.

For a company earning almost all its revenue from advertising, that matters.

Meta has already been warned

The Oakland case is not happening in isolation.

In March, a Los Angeles jury found Meta and Google’s YouTube negligent in the design of their platforms in a case brought by a young woman who said she became addicted to Instagram and YouTube as a child. The jury awarded $6 million, with Meta responsible for $4.2 million and Google for $1.8 million. Both companies have challenged the verdict.

The sums were insignificant for either company. The principle was not.

The jury accepted that product design itself could form part of the basis for liability. That provides lawyers pursuing similar cases with something they did not previously have: a successful verdict.

New Mexico has gone much further. Meta is currently facing $942 million in penalties and other payments following litigation there, including a $567 million order intended to address harm to young people. Meta is appealing.

The New Mexico judgment also went beyond money, ordering changes to the way Meta’s products operate for younger users. That is precisely why Oakland matters.

A financial penalty can be absorbed. A template for redesigning the product can spread.

An expensive time to fight

Meta is hardly short of cash. At the end of June it held $90.26 billion in cash, cash equivalents and marketable securities. But the company is also in the middle of one of the most expensive investment programmes in its history.

It now expects capital expenditure of between $130 billion and $145 billion this year as Mark Zuckerberg pours money into artificial intelligence infrastructure. Meta spent $31.08 billion on capital expenditure in the second quarter alone, while free cash flow fell to $784 million.

The company also booked $2.4 billion of charges related to legal proceedings during the quarter.

More tellingly, Meta itself has warned investors that youth-related trials taking place in the US this year could result in a “material loss”.

The company can afford to fight. What investors must decide is how many fronts it can fight on at once without the costs beginning to change the investment case.

Is this Big Tobacco all over again?

The comparison with tobacco is tempting.

During the 1990s, US states turned litigation against cigarette manufacturers into an industry-wide reckoning. The 1998 Master Settlement Agreement imposed enormous financial costs while restricting how tobacco companies could market their products, particularly to young people. Tobacco manufacturers agreed to pay at least $206 billion over 25 years and accepted major changes to advertising and other business practices.

There are obvious similarities with the attack on social media.

State attorneys general are acting together. Young people sit at the centre of the allegations. Internal corporate research and what executives knew are becoming important evidence. And regulators are increasingly interested not simply in compensation, but in changing the commercial behaviour of the companies themselves.

There is, however, an important difference.

A cigarette is a physical product with well-established links to addiction, cancer and premature death. Social media is far more complicated. It connects families, supports businesses, distributes information and provides entertainment alongside whatever harms may exist.

The science is also less settled. Association does not necessarily prove causation, particularly when adolescent mental health can be affected by family circumstances, education, relationships, economics and countless other factors.

Meta will understandably push that argument hard.

Yet the Big Tobacco comparison does not require Facebook to be treated like a packet of cigarettes. The similarity lies elsewhere. Both disputes ask what happens when highly profitable companies are accused of understanding risks to younger consumers while continuing to use commercial practices that critics say increase those risks.

That is where the California case becomes uncomfortable for the wider technology industry.

Social media itself is on trial

Meta may be the defendant, but TikTok, Snap, YouTube and others should be watching closely.

Thousands of lawsuits are already challenging social media companies over alleged harm to younger users. Snap and TikTok settled before the Los Angeles bellwether trial, while YouTube fought the case alongside Meta and lost.

If the argument that product design can create liability continues to survive appeals, the legal landscape changes.

The question is no longer only whether a platform removed harmful material quickly enough. It becomes whether the platform deliberately created features that encouraged people, particularly children, to use it excessively.

That brings the commercial engine itself into view.

Social media spent its first two decades trying to perfect engagement. The winners were those that could persuade users to stay longer, return more frequently and interact more often.

The next decade may be about proving that the same techniques can be used responsibly.

Meta could still win in Oakland. The jury hearing the case is advisory, meaning its verdict will guide US District Judge Yvonne Gonzalez Rogers but will not bind her. The final findings will be hers.

But whatever happens, the industry has already moved into unfamiliar territory.

For years, the question surrounding social media was what appeared on the platform.

California is now asking whether the platform itself is the problem.

If the courts ultimately agree, Meta’s biggest concern will not be writing another cheque. It will be discovering how much of its extraordinary advertising business depends on the very features regulators increasingly want changed.