Escaped a robbery! Meta (META.US) has settled social media addiction lawsuits with multiple states in the US and will pay up to $18 billion

The Zhitong Finance App learned that on Wednesday local time, Meta (META.US) reached a settlement agreement with several US states, agreed to pay up to about 18 billion US dollars, and promised to impose comprehensive new restrictions on young people's use of the company's Facebook and Instagram social media platforms, thus ending a class action lawsuit about the harm of social media for young people. The agreement still needs to be approved by a judge. Meta denied the allegations in court documents and stated that the settlement did not constitute an admission of liability.

This high-profile class action lawsuit began in October 2023. Many US states, including California and Colorado, accuse Meta of designing social media platforms into products that are easy for teenagers to become addicted to, concealing safety risks from parents, and collecting data on children under 13 in violation of regulations.

The lawsuit is viewed as one of the highest-risk “life and death lawsuits” Meta has faced so far. Meta previously estimated that if the lawsuit is lost, the related cases in California, Colorado, Kentucky, and New Jersey alone could face fines of up to 1.4 trillion US dollars, which is once close to the company's current market value. States are not only seeking huge financial penalties on behalf of the public, but are also requesting court orders that could have forced Meta to change the way the platform operates.

As a result, the settlement, which was reached as the federal court jury trial in Oakland, California enters its second week, is certainly an “escape from the bank” for Meta. According to court documents, Meta agreed to pay up to $16.7 billion to resolve the core lawsuit currently being tried in Oakland, California. Additionally, the company will pay $459 million to resolve other privacy-related claims and $75 million in legal fees. Meta said separately that it has reached an agreement with the state of Texas to pay up to $1 billion.

Meta's subsequent corporate announcement adopted a broader overall payment arrangement, stating the amount of the agreement at around $18 billion. Of this, about 12.7 billion US dollars will be paid in installments over 10 years, and the money will be distributed according to factors such as the population of each state and used for youth cybersecurity-related projects; in addition, about 5.3 billion US dollars will have special conditions, that is, only if platforms such as TikTok and YouTube under Google (GOOGL.US) agree to adopt similar youth protection measures and the relevant states pay compensation, Meta will pay the remaining 5.3 billion US dollars.

Meta is expected to charge about $10 billion in legal fees in the third quarter of 2026. This fee was not included in the cost guidelines given during the company's previous earnings call for the second quarter.

In addition to huge compensation, Meta is also required to make a series of product adjustments for underage Facebook and Instagram users. According to the settlement agreement, Meta will limit users under 18 to use its apps for two hours a day by default. In addition, the company will also launch a “night mode”, which restricts the use of apps by minors from midnight to 6 a.m. by default; “school mode” will turn off push notifications for underage users from 8 a.m. to 3 p.m. In principle, the above settings can only be changed with parental permission. Meta also needs to further strengthen age verification measures to prevent underage children from registering and using the platform, and provide parents and guardians with more management tools.

At the same time, the agreement will also require Meta to enhance age verification tools to more accurately identify young users on the platform. Teenagers will also be restricted from using some features, including checking the number of likes a post has received and using beauty filters, which will touch on one of the social platform's most controversial product mechanisms in a long time — social comparison. The proposed settlement also includes the appointment of an independent auditor to oversee Meta's compliance with the agreement. The auditor can make independent recommendations and report results to the states.

Notably, the only states not involved in this settlement are New Mexico and Florida. The state of New Mexico won a trial against Meta earlier this year and received nearly $1 billion in compensation. Florida Attorney General James Uthmeier said on Wednesday that the amount of the settlement was insufficient to cover related damage. James Uthmeier posted on social media: “Compared to the profound harm that Meta's profit-driven addictive features cause to children, these payments are only worth nothing. For a trillion-dollar company, this is just a tap on the wrist because it will pay lawyers more money than the states.” “We'll see you in court,” he added.

For Meta, the biggest significance of this settlement is probably not the payment of about $18 billion per se, but rather the elimination of a tail risk that could theoretically reach the level of a trillion dollars. In addition to Meta's own estimate of a maximum fine of $1.4 trillion, the states concerned believe the actual figure is closer to $200 billion. Whatever the final figure, the size of the potential fine would be enough to have a fundamental impact on Meta's financial position and business model. For investors, Meta paid a huge, definitive cost, but the risk of litigation, which may have previously been much higher than this figure and whose outcome is highly uncertain, has been drastically reduced.

However, the settlement does not mean that Meta's legal risks to youth safety have completely disappeared. Companies such as Meta, Snap, and YouTube are still facing thousands of lawsuits over social media causing mental health problems for young people. The regulatory and litigation pressure surrounding social media product design, adolescent mental health, and child data protection is far from over.