The big Meta multi-state settlement got most of the headlines, and there’s been plenty of discussion about how it’s a bad deal for kids and pretty clearly anti-competitive. That’s thanks to a very strange clause that encourages Meta to make its own required feature changes the “industry standard” by convincing other platforms to cut similar deals with state AGs. So far, YouTube has said it won’t accept Meta’s terms, because they don’t make sense for its very different platform. TikTok hasn’t publicly commented on the Meta deal, though it did reject Meta’s attempt to run ads on TikTok itself urging TikTok to join the settlement.
It didn’t get nearly as much attention, but TikTok did somewhat quietly settle with one state: Alabama. They came to a $100 million settlement in a case that Alabama brought last year, claiming that the features of TikTok were “addictive.” The settlement came out on a Friday, just before the first such trial was set to begin against TikTok the following Monday. Given how we’ve seen juries more than willing to blame social media platforms for anything bad that happens to kids using the platform, it’s clear that TikTok was under the gun to work out a settlement that avoided an expensive trial and possibly more expensive verdict.
On Friday, Alabama announced that TikTok had agreed to safety measures including a two-hour daily limit for underage users and additional parental controls to further limit time on the site. The settlement also restricts unlimited scrolling and overnight access, as well as the use of beauty filters and other features that social media experts have said are harmful to teenagers’ mental health.
Most of those sound pretty similar to Meta’s settlement. But there are some key differences in the full settlement agreement. And the biggest, as first pointed out by Stanford’s Daphne Keller, is that whereas the Meta settlement encouraged Meta to convince TikTok and YouTube (and possibly Snap) to sign similar deals and to pay similar amounts, the TikTok settlement… appears to encourage Alabama to convince other Attorneys General to go after TikTok.
It’s… weird.
The agreement sets up multiple “funds” that are wholly dependent on other state AGs coming to similar settlements. The headline $100 million number is “fund 1.” The $100 million is supposed to go towards compensating people “harmed” by TikTok, but it appears that the Alabama Attorney General gets to decide how that works, and based on past settlements in other cases, I’m going to assume there won’t be much transparency there. Then there’s another $16.2 million going to outside lawyers and litigation costs:
Fund 1 is paid to resolve the State’s claims under the Alabama Deceptive Trade Practices Act (Ala. Code § 8-19-1 et seq.). $14,200,000.00 is allocated to attorneys’ fees and $2,000,000.00 is allocated to litigation expenses associated with this action (to be paid to outside counsel directly). The remaining $100,000,000.00 of Fund 1 is designated as compensatory restitution and remediation for the benefit of Alabama consumers within the meaning of Section 162(f)(2) of the Internal Revenue Code and shall be paid to the Office of the Alabama Attorney General to be used in the Attorney General’s sole discretion for any lawful purpose, including compensatory restitution and remediation for the benefit of Alabama consumers.
“Sole discretion for any lawful purpose.” In other words, the AG’s office can spend it however it wants, and there’s no requirement that a dime reach anyone “harmed” by TikTok. Indeed, the chief counsel in the case has more or less admitted that the Alabama has no intention of actually using the money to help kids at all:
Chief Counsel Katherine Robertson, who oversees the case for the Attorney General’s Office, said the money will likely land in the state’s general fund, though her office wants lawmakers to steer it toward Alabama youth.
“It will probably go to the general fund, but we hope to have discussions with our legislative leadership about using this to really remediate the harm that’s been done to our youth here in Alabama,” Robertson said.
But then it gets really bizarre. There’s a second fund, Fund 2, that TikTok agrees to pay, up to an additional $183.8 million, depending on if and when certain “tiers” of other AGs convince TikTok to settle:
Fund 2 Contingent Payment Pool & Sequential Tiered Vesting
(a) Total Contingent Amount: In addition to Fund 1, Defendants shall establish a contingent payment allocation pool of $183,800,000.00 (“Fund 2” or “Contingent Amount”).
(b) Vesting Tiers and Sequential Timeframes: Fund 2 shall vest incrementally across four (4) distinct tiers based upon state participation in qualifying agreements (including any consent judgment and settlement agreements) or Assurances of Voluntary Compliance (“AVCs”)
(i) Tier 1 (30% / $55,140,000.00): Vests when ten (10) State Attorneys General execute qualifying agreements, provided the tenth (10th) agreement is executed within twenty-four (24) months following the Effective Date (“Tier 1 Window”).
(ii) Tier 2 (30%/$55,140,000.00): Vests when twenty (20) State Attorneys General execute qualifying agreements, provided the twentieth (20th) agreement is executed within twenty-four (24) months following the Tier 1 Vesting Date (“Tier 2 Window”).
(iii) Tier 3 (20%/$36,760,000.00): Vests when thirty (30) State Attorneys General execute qualifying agreements, provided the thirtieth (30th) agreement is executed within twenty-four (24) months following the Tier 2 Vesting Date (“Tier 3 Window”).
(iv) Tier 4 (20%/$36,760,000.00): Vests when forty (40) State Attorneys General execute qualifying agreements, provided the fortieth (40th) agreement is executed within twenty-four (24) months following the Tier 3 Vesting Date (“Tier 4 Window”).
I can’t recall ever seeing anything even remotely like this. As regular Techdirt commenter John Roddy noted, TikTok and the Alabama AG here basically created an affiliate program for settlement enforcement. I honestly can’t even wrap my head around the logic here. “Here, we’ve agreed to pay you a ton of money to settle this case… and if we agree to pay more money to other states, you also get a cut for being first in line.”
Think about the incentive structure here: Alabama’s AG now has a direct financial stake in recruiting 39 other states to pressure TikTok into the same deal, on a deadline. I can’t see how anything good comes of that.
And, just as with the Meta settlement, this appears to be painfully unconstitutional. The settlement requires the suppression of clearly constitutionally protected speech at gunpoint. “Agree to suppress this content we don’t like or we will make you suffer through a painful trial, and possibly an even more painful verdict.”
The Meta settlement was concerning enough on its own, but now this model of AGs extracting speech restrictions through settlements is becoming a template, and it’s picking up weird gamified bounty structures along the way. The state AGs may get their headlines and their billions, but the real losers are everyone who uses social media and the First Amendment.