Inside Meta's Landmark Trial: The Staggering Financial and Structural Risks of the Social Media Addiction Lawsuit

The trial is expected to last six weeks [File: Peter DaSilva/Reuters]. Social media giant Meta is facing a landmark trial that could fundamentally impact its future as opening statements began on Tuesday in a US federal court case brought by 29 state attorneys general.

The attorneys general have accused Facebook and Instagram’s parent company of designing platforms to encourage infinite scrolling and keep their youngest users hooked, despite allegedly knowing they could fuel addictive behaviour. The company is also accused of collecting data on minors, with the case expected to last as long as six weeks. If the plaintiffs get their way, the Silicon Valley-based tech company might have to make structural changes to its platform and pay as much as $1.4 trillion in fines. While Meta denies the allegations, the potential consequences could be significant for a company already facing low employee morale, waves of layoffs, and a series of lagging investments.

Significant financial impact

The potential financial exposure for Meta is immense. State penalties could reach as high as $1.4 trillion, Meta has said, although that figure is unlikely, as the coalition of states indicated it is seeking $200bn in damages. To put that in perspective, this amount is roughly equivalent to Meta’s revenue last year, during which the tech giant generated nearly $201bn in revenue alongside $83.2bn in operating income in 2025. The $200bn ask is significantly higher than any penalty the company has faced thus far. In March, a jury in a separate New Mexico lawsuit ordered Meta to pay $375m in civil penalties, with another $567m ordered by a judge earlier this month.

At the time of the March penalty, financial services firm Morningstar noted it was not overly concerned about the impact of the looming court cases on Meta’s valuation, even if governments use them to push for structural changes. “We think that any algorithmic changes imposed on the firm via legislation are also a manageable risk, given the firm’s monetizable user base, which is overwhelmingly adult, thereby insulating the firm against such legislation,” a Morningstar analyst note stated.

While the outcome of the coalition case remains unpredictable, Meta’s problems extend to concerns about significant financial exposure in several investments and business units. Reality Labs, the division responsible for Meta’s virtual and augmented reality tools and software like the metaverse, has lost $70bn since 2020. Meta has also increased spending to build out AI infrastructure as growing concerns about an AI bubble loom over the sector. Cash flow for the business fell significantly from $12bn in the first quarter to $784m in the second quarter, avoiding the negative territory some analysts had anticipated.

“I think it’s [Meta] in an unenviable spot, because it’s facing pressure from multiple fronts,” Aleksandar Tomic, associate dean for strategy, innovation, and technology at Boston College, told Al Jazeera. “These verdicts are going to put pressure on their advertising business. The AI development seems to have stalled, and the virtual reality thing seems to be dead on arrival, at least for now. So the only bright spot is that they might be able to get into the AI infrastructure game, but that is no guarantee.”

Meta itself has expressed worry regarding the financial strain. “There can be no assurances that a favorable final outcome will be obtained in all our cases, and defending any lawsuit is costly and can impose a significant burden on management and employees,” the company noted in a January Securities and Exchange Commission (SEC) filing.

Can the lawsuit impact its core product?

While financial penalties present a heavy strain, a legal requirement to fundamentally alter the machinery that makes Instagram and Facebook valuable to advertisers would prove much harder for Meta to absorb. The lawsuit calls for business model changes, including the elimination of the infinite scroll that allows users to continually look at new posts. Meta’s advertising business relies on impressions—the number of times content appears on a user’s screen—meaning longer app usage yields more visible impressions.

“Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users of our products that deliver ad impressions, particularly for Facebook and Instagram,” Meta stated in an SEC filing, adding that user growth and engagement are also affected by competitive products and services like TikTok that have reduced engagement.

In 2025, Meta reported 12 percent more advertisement impressions than in 2024, while the average price per advertisement jumped by 9 percent. The plaintiff states also want the company to remove algorithms and AI models built from data compiled from minors, while compelling the platform to promote user wellbeing and set time restrictions for young consumers.

Although Meta has introduced features like teen time-management tools, managing ad preferences, and alerts after 20 minutes of platform use, the lawsuit argues these measures are inadequate because teens can easily dismiss the notifications and continue scrolling. “We stand by our record of creating strong protections for teens, and look forward to making our case in court,” Stephanie Otway, a Meta spokesperson, told Al Jazeera.

How will this impact future lawsuits?

Meta is currently facing lawsuits from more than 100,000 different parties, according to SEC filings, including individuals, cities, states, and school districts across the US. “These first few cases going out are really going to set the standard,” Tre Lovell, a Los Angeles-based media law and entertainment lawyer, told Al Jazeera, predicting a combined global settlement eventually.

Tomic noted that Snap, TikTok, and Google’s YouTube have also faced litigation over allegations that their products encourage compulsive youth use. These claims could open the floodgates to litigation reminiscent of the tobacco industry challenges in the late 1990s. “This is the tobacco litigation of the information age. They [the plaintiffs in the Meta lawsuit] have identified this addiction component of social networks. Now that there is a judgement against Meta, I would be shocked if we don’t see everybody else getting sued, and once they get sued, it will be pretty much the same,” Tomic stated, recalling how 46 states settled lawsuits with major cigarette makers in 1998 over health costs and advertising restrictions targeting youth.