How Meta’s $17.1B Social Media Settlement Came Together

Six days before the start of a federal trial over child online safety, CJ Mahoney, Meta’s chief legal officer, traveled to Nashville on Aug. 6 to meet with attorneys from about a dozen states. He wanted to broker a huge settlement, two people familiar with the conversation said.

Meta has already suffered losses in court this year over claims it created addictive products that harmed young users. Mark Zuckerberg endured an entire day of grilling on the witness stand during one of these trials. (“You’re mischaracterizing it,” he repeated.) He is likely to be questioned again in a federal trial in California in which a coalition of states sued Met, arguing the company contributed to a national children’s mental health crisis.

Over bagels and coffee in an Art Deco office on the grounds of the Tennessee Capitol, Mr. Mahoney laid out his terms, which Mr. Zuckerberg personally approved, according to four people familiar with the negotiations. Meta would pay up to $19 billion to states and make changes to its platforms to improve teen safety. A portion of the payments would be withheld unless all states joined and other social media companies matched.

For the prosecutor in the room, the offer was interesting. They have been negotiating with the Silicon Valley giant for months with little progress, the people said. On Tuesday, 47 states — two dropped the lawsuit — the District of Columbia and several territories agreed to a settlement worth about $17 billion.

“There’s a saying here in Tennessee,” state Attorney General Jonathan Skrmetti said at one of the meetings with nearly all state attorneys, encouraging them not to be greedy. “Pigs get fat and pigs get slaughtered.”

The settlement, one of the largest ever between the company and a group of states involved in the lawsuit, was announced on Wednesday. This account of how it came together is based on a dozen interviews with state leaders, former and current Meta executives, court documents and court testimony.

For years, Meta, which owns Instagram and Facebook, appeared to have an impenetrable defense against child safety lawsuits. The company’s aces were Section 230 of the Communications Decency Act, a 1996 law that protects platforms from liability for what users post on their sites, and the First Amendment, which protects free speech.

However, worldwide concerns have grown about the harmful effects of social media on children. Last year, Australia became the first country to ban children under 16 from using social media, and many other countries have introduced or are considering similar rules.

A flurry of online child safety lawsuits have been filed in the United States since 2022, with plaintiffs focusing on a new argument that claimed social networking sites designed their products in a harmful way that violates consumer protections and other laws.

The lawsuits accused the companies of knowingly creating sites that were as addictive as cigarettes, taking a page from a strategy used against Big Tobacco in the 1990s. Suddenly relying on Section 230 didn’t seem so safe.

Concerns about the cases were growing at Meta, according to two people familiar with the thinking inside the company.

In January, Meta hired Mr. Mahoney, a veteran attorney who had been Microsoft’s general counsel. Mr. Mahoney, who reports directly to Mr. Zuckerberg, took the chief legal officer position in part because he was attracted by the prospect of negotiating a settlement, said one of the people familiar with the Met’s thinking. He has a history of negotiating complex deals, most notably in 2020, when he was the lead negotiator for the Trump administration’s Canada-Mexico trade deal as deputy US trade representative.

Just days after starting his new job, Mr. Mahoney called Attorney General Phil Weiser of Colorado and Mr. Skrmetti of Tennessee, the states’ chief negotiators, to begin settlement talks, four people familiar with the conversations said. Mr. Mahoney, who is based in Silicon Valley, flew to meet them separately in their states. He wanted to explore a grand settlement that would end federal and state cases brought by all state attorneys general.

The two sides have held previous talks. But the content of the talks changed as Mr Mahoney appeared clearly interested in reaching a resolution.

But there was an immediate roadblock as Meta was reluctant to make any changes to its products, the three people said. This was unpredictable for many prosecutors.

“We brought these suits because we wanted to protect children and we wanted to reform the platforms,” ​​Mr. Skrmetti said in an interview. Forcing platform changes “is really the most important part here.”

Every attorney general has been familiar with a case where a child faces harm from social media, Mr. Weiser said in an interview. “The shared commitment to do something was rooted in the pain we all know, the fear we all had,” he added.

The talks dragged on. Within weeks, however, Meta received a harsh reminder of the potential problems ahead.

The young woman, identified as KGM, appeared in a trial that began in late January, accusing social media companies of creating features on their platforms, such as the endless scroll, that led to her anxiety and depression.

The defendants, Meta, Snap, TikTok and YouTube, argued in a preliminary hearing that the case should be dismissed because of Section 230. But Judge Carolyn B. Kuhl of the California Superior Court in Los Angeles County ruled that the case involved product liability, not speech.

The five-week trial was deeply embarrassing for Matt. Mr. Zuckerberg testified for the first time about child safety before a jury. He grilled that he allows millions of underage users on Instagram. Parents who said their children had been harmed by social media packed the courtroom. Internal documents submitted as evidence showed that Meta employees compared themselves to drug pushers.

At the same time, the New Mexico Attorney General sought to charge Met in state court with violating consumer protection laws.

Within two days in March, Meta lost both cases. The decision raised questions about the reputational damage future lawsuits could cause.

The stakes kept getting higher as Meta and California, Colorado, Kentucky and New Jersey prepared for trial this summer in the U.S. District Court for the Northern District of California in Oakland. The states have accused Meta of violating consumer protection and child privacy laws, and have demanded roughly $200 billion in fines and changes to the company’s platforms.

Mr Skrmetti and almost all other prosecutors also filed their own cases.

But in ongoing talks, Meta still didn’t meet all of the states’ requirements for safety features.

On the eve of the trial in Oakland, Meta made one last attempt to kill the case. On July 22, the company asked the U.S. Court of Appeals for the Ninth Circuit to dismiss the social media addiction cases, citing Section 230 legal protections.

While Meta awaited the Ninth Circuit’s decision, Mr. Mahoney headed to Tennessee with his $19 billion offer. He left without a deal, but talks continued.

On August 10, the appeals court ruled against Meta. Suddenly, the talks picked up speed, the four people said. With their new leverage, the states have begun daily negotiations with Meta’s lawyers in person in Nashville and via video calls to win final concessions, one of the people said.

As part of the deal, the company agreed to additional security measures. The platform’s growing list of changes included stopping teenage users from endlessly scrolling and introducing a two-hour daily limit on Instagram and Facebook use. Meta also said it would limit teen use between midnight and 6 a.m. and mute notifications during school hours from 8 a.m. to 3 p.m.

Meta proposed paying more and raising limits on how much young users could use its platforms if other social media companies like TikTok and YouTube agreed to similar controls for their apps — something Meta said would prevent it from being singled out.

The company wanted to avoid a lawsuit and set a condition that all states had to sign up. But on a video call to discuss the proposed settlement on Aug. 11, some prosecutors questioned whether the money was enough and how it would be distributed, five people with knowledge of the conversations said.

States came up with an equation to divide the fund based on their population size and the individual charges brought against Meta in each case.

The Oakland states’ case went to trial last week while they were still negotiating with Meta. On Sunday, the attorneys general of Colorado and Tennessee submitted a final settlement agreement to the other states. They emailed the document with instructions for signing by Tuesday at 6 p.m

That day, Adam Mosser. the head of Instagram, testified in Oakland. The States’ plan to call Mr. Zuckerberg to testify was taking shape.

On Tuesday, all but Texas, Florida and New Mexico signed on, ending the process. New Mexico has already won its case, and Meta settled with Texas on Wednesday for about $1 billion, offering a guardrail for young users similar to the multistate settlement.

“Section 230 and the First Amendment are not impenetrable shields to hold Met accountable,” California Attorney General Rob Bonta said Wednesday in a call with reporters. The states’ settlements show the limits of these laws’ abilities to “deliver justice and accountability” to “people, children, families who have been harmed by wrongdoing.”

In a statement on Wednesday, Mr Mahoney said he was proud of the agreement and the power it gave parents to protect their children.

“But its success depends on all the other social media platforms following Meta,” he said.

Meta still faces thousands of other lawsuits filed by teenagers, families and school districts. The next major personal injury trial is scheduled to take place in California Superior Court in Los Angeles County in October.

Meta said she was confident she could win the case.