Meta is heading into one of the most consequential legal battles in its history, with a coalition of 29 state attorneys general seeking potentially hundreds of billions of dollars and sweeping changes to how Facebook and Instagram operate.
Opening arguments begin Tuesday in Oakland, California, less than two weeks after Meta suffered a major defeat in New Mexico. The new case could carry far greater consequences, with states seeking nationwide restrictions on some of the features they allege make Meta’s platforms addictive to children and teenagers.
New Mexico Attorney General Raúl Torrez, fresh off his state’s victory against Meta, warned that Wall Street may be seriously underestimating what’s at stake.
“You could wake up with a headline judgment that is, as I’ve said, astronomical,” Torrez told CNBC.
A Potential $200 Billion Judgment
The lawsuit, originally brought in 2023, involves attorneys general from 29 states, with lawyers representing California, Colorado, New Jersey and Kentucky leading the trial.
California Attorney General Rob Bonta and the coalition accuse Meta of designing Facebook and Instagram in ways that encourage addictive behavior among young users while allegedly misleading families about the risks.
The states allege violations of the federal Children’s Online Privacy Protection Act, commonly known as COPPA, along with various state consumer protection laws.
The potential financial exposure is enormous.
Meta’s attorneys have previously argued that damages in the consolidated case could theoretically reach as high as $1.4 trillion. Lawyers representing the states told the federal judge overseeing the case last week that roughly $200 billion is a more realistic figure.
Even that lower estimate would make the case extraordinary.
But the financial penalties may not be Meta’s biggest concern.
States Want Changes to Instagram and Facebook
The attorneys general aren’t simply asking for money. They are seeking court orders that could force Meta to fundamentally alter features across Facebook and Instagram.
In a court filing, the states requested permanent nationwide injunctive relief if Meta is found to have violated COPPA.
That could include requiring Meta to delete personal information collected from children under 13, along with certain algorithms and models trained using that data.
For alleged violations of state consumer protection laws, the states are targeting several familiar social media features, including:
- Infinite scroll
- Autoplay
- Ephemeral content
- Beauty filters
- Engagement-optimized recommendation algorithms
The scope of those demands helps explain why some industry observers are comparing the growing litigation against social media companies to Big Tobacco’s legal reckoning in the 1990s.
Tobacco companies ultimately paid billions of dollars and faced restrictions that permanently changed how the industry operated and marketed its products.
Meta could now face its own version of that moment.
New Mexico May Have Provided the Blueprint
The California trial comes shortly after Meta suffered a major defeat in New Mexico.
A jury previously ordered Meta to pay $375 million for violating the state’s unfair practices law. A judge subsequently ordered the company to contribute another $567 million to an abatement fund in a case involving allegations related to child sexual exploitation.
Combined, the penalties approach $1 billion.
Meta has disputed the ruling and said it plans to appeal.
The New Mexico case also resulted in requirements aimed at changing how Meta identifies and handles underage users.
Among other measures, Meta was ordered to improve its age-assurance technology using artificial intelligence and attempt to develop a dedicated model capable of predicting whether users are under 13.
The company must also make it easier to report suspected underage accounts and work with schools or child-safety organizations on reporting tools.
Torrez believes that strategy could become a roadmap for other states.
Rather than focusing primarily on harmful content posted by third parties, regulators are targeting Meta’s own product designs and representations about platform safety.
That distinction could be critical because Section 230 of the Communications Decency Act has historically provided technology companies broad protection from liability over content created by users.
Why California Could Be Far More Dangerous
New Mexico has a population of roughly 2 million people. California has nearly 40 million and is Meta’s home state.
That difference could dramatically increase the potential scale of any judgment.
“This is a state with some 2 million people,” Torrez said of New Mexico. “If you map that same argument onto California or Florida or Texas or New York, I mean, that’s a potentially massive and a market shifting force.”
Julia Powles, executive director of the UCLA Institute for Technology, Law and Policy, said California’s influence makes the trial particularly significant.
“California matters more than any other jurisdiction in the U.S.,” Powles said. “It’s where they are subject to the greatest legal reach, and it’s a jurisdiction watched around the world.”
The trial is being overseen by U.S. District Judge Yvonne Gonzalez Rogers, and a jury was seated last week in Oakland.
Meta Says the Claims Are Unsubstantiated
Bonta has accused Meta of knowingly creating dangerous products for young users and then misleading families and communities about those dangers.
“Meta designed a dangerous product for young users, knew it to be dangerous, and then lied to children, families, and the community about how dangerous it was,” Bonta said in a statement.
Meta strongly disputes that characterization.
The company called the attorneys general’s claims “unsubstantiated” and argued that their financial demands are “vastly disproportionate.”
Meta also said the states haven’t demonstrated that residents were actually misled and accused regulators of attempting to punish the company for industry-wide challenges such as determining users’ ages.
The company could also challenge any sweeping product restrictions on constitutional and Section 230 grounds.
That strategy already had some success in New Mexico, where the judge declined to impose certain changes sought by the state, including eliminating infinite scroll and modifying recommendation algorithms.
The Bigger Threat May Be Meta’s Business Model
Meta’s financial strength ultimately comes from advertising.
Roughly 98% of the company’s revenue is generated through advertising, making engagement across Facebook and Instagram critical to the business.
That cash machine has become even more important as CEO Mark Zuckerberg pours enormous sums into artificial intelligence infrastructure.
Meta’s AI-related spending could reach as much as $145 billion this year, meaning any disruption to advertising revenue could have consequences well beyond Facebook and Instagram.
That’s why the legal battle isn’t simply about whether Meta can afford a massive fine.
The more important question may be whether courts ultimately force the company to alter the engagement systems that help generate its enormous advertising revenue.
Laura Marquez-Garrett, an attorney with the Social Media Victims Law Center, said government plaintiffs have powers that individual lawsuits generally lack.
“They have the ability that private plaintiffs typically do not have to actually force these companies, through the court system, to change their business model, their design decisions, all of that,” she said.
Wall Street May Be Watching the Wrong Risk
Meta shares are already down about 11% this year, but investor concerns have largely centered on the company’s enormous AI spending rather than its legal exposure.
Torrez believes that could be a mistake.
“The analysts aren’t pricing this correctly right now,” he said.
His argument is that investors are treating New Mexico as an isolated legal defeat when it could instead represent the beginning of a much larger wave of litigation.
Meta and other social media companies are already facing additional lawsuits around the country, including litigation involving school districts and allegations of social media addiction.
A California defeat could give regulators elsewhere additional momentum.
And while a multibillion-dollar penalty would grab headlines, court-ordered changes to Facebook and Instagram’s algorithms and engagement features could ultimately prove far more consequential.
For a company using the enormous profits generated by its advertising empire to finance one of corporate America’s biggest bets on artificial intelligence, the stakes extend well beyond the courtroom.
The California trial could help determine just how much freedom Meta has to operate the social media business that funds everything else.
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