Key Takeaways
- Meta hit with $25B judgment over misleading privacy claims.
- AI firms face scrutiny over deceptive claims and data use.
- More state lawsuits possible against tech companies.
New Mexico Attorney General Raúl Torrez is warning artificial intelligence companies of potential legal action after a state jury awarded $25 billion against Meta on Wednesday for misleading consumers about privacy protections.
The record-setting judgment could encourage other states to pursue independent lawsuits against technology companies over deceptive claims, online safety and consumer data practices, potentially increasing legal scrutiny of the AI industry.
New mexico targets meta’s privacy claims
The lawsuit focused on Meta’s public statements about its privacy protections following the 2018 Cambridge Analytica scandal, when Facebook faced scrutiny over collecting and sharing users’ information with political consulting firm Cambridge Analytica.
Rather than pursuing the underlying privacy violation alone, New Mexico argued that Meta misled consumers about its safeguards. The case relied on consumer protection laws, offering other states a potential legal approach to address alleged corporate deception.
Torrez said his office would closely monitor AI developers, particularly companies making claims about product capabilities, consumer data use, and safety.
“Anyone in artificial intelligence, people who are building products that they can’t control,” Torrez said, adding that companies making representations about their products and data practices could face scrutiny.
“The message should be received in Silicon Valley that this is not the end; it’s just the beginning,” he said.
Meta’s chief legal officer, CJ Mahoney, said the verdict made it “all but impossible to do business” in New Mexico. The company said it would appeal the ruling.
States could expand legal action against tech
New Mexico, Texas and Florida were the only states that declined to settle claims involving Meta’s alleged failures concerning child safety, addictive design and privacy protections.
A multistate settlement with Meta reached in August totaled $17 billion, according to the report. New Mexico’s decision to proceed to trial instead resulted in a substantially larger judgment, although the company’s appeal could affect the outcome.
Legal experts said the verdict could influence how attorneys general pursue technology companies, particularly where consumer protection laws offer grounds to challenge allegedly misleading statements.
Nidhi Hegde, executive director of the American Economic Liberties Project, said the case focused on deception rather than content or speech, where technology companies have developed legal defenses.
Kathleen McGee, a partner at Lowenstein Sandler and former New York attorney general’s internet and technology bureau chief, said the ruling could embolden state regulators.
“It will encourage all states’ attorneys general to be emboldened to bring more cases against companies that they think are engaged in public harm,” McGee said.
However, taking companies to trial carries risks, including unpredictable jury decisions, high litigation costs, and the possibility of overturned verdicts on appeal.
AI Developers face greater consumer protection scrutiny
Torrez encouraged other states to consider independent lawsuits, arguing that trials can expose corporate records that might otherwise remain confidential under settlements.
Court documents reviewed by Serge Egelman, a University of California, Berkeley security and privacy researcher who testified as an expert witness, questioned Meta’s response to concerns about third-party applications accessing user data.
According to court documents, Meta conducted 14 forensic data audits despite its internal investigation identifying thousands of instances of suspicious activity. Egelman also challenged a report presented as an audit, saying its own wording stated that no audit had been performed.
The ruling comes as regulators increasingly turn to consumer protection laws to challenge alleged deception involving online safety and emerging AI technologies.
Torrez said he wanted to increase the financial consequences of regulatory violations, arguing that settlements could be treated as routine business expenses by large technology companies.
Meta did not address the verdict on its third-quarter earnings call Wednesday but disclosed that the multistate settlement added $10 billion to its expenses. Its quarterly revenue reached $64 billion.
For AI developers, the case highlights potential legal exposure surrounding marketing claims, privacy assurances, and product safety representations as state regulators examine consumer harms.
