Meta Platforms and Google-parent Alphabet have suffered a courtroom loss that could expose technology companies to a wave of future legal complaints. The ruling sets an interesting precedent that appears to be creating a panic about a “Big Tobacco”-style surge of huge settlements yet.

A Los Angeles jury found Meta and Google’s YouTube contributed to mental-health issues of a young woman during her childhood and teenage years because of the addictive nature of their products.

The decision could be a bellwether, as the standard defense used by social-media companies that they are not liable for the third-party content hosted on their platforms was rejected.

Meta and Google both told Barron’s they disagreed with the verdict and plan to appeal in emailed statements to Barron’s. Meta said teen mental health cannot be linked to a single app, while Google said the case mischaracterized YouTube as a social-media site rather than a streaming platform.

Meta shares dropped 8.4% to $545.15 on Thursday, set to log their biggest percentage drop since Oct. 30, according to Dow Jones Market Data. That would shave $119.2 billion in market cap off the company’s valuation—putting it on track to become the 8th-largest U.S. company for the first time since Sept. 26, 2023, behind Tesla and Broadcom.

Alphabet stock was down 3.7% to $280.17.

The companies have to pay a relatively small amount of damages, with the plaintiff in the Los Angeles case awarded $6 million. But Meta and Alphabet now face thousands of consolidated lawsuits filed by teenagers, school districts, and state attorneys general against the platforms, alongside other companies that run social-media sites.

The risk for the technology companies is that future juries choose to treat social-media addiction in the same way as tobacco companies were penalized in lawsuits over the harms of smoking. Cigarette makers have faced multiple multibillion-dollar settlements, the biggest being a 1998 agreement that required tobacco companies to pay $206 billion into state treasuries to cover smoking-related healthcare costs.

So far, the risks of such huge payouts for social-media companies still seem distant. Tobacco companies fought cases as early as the 1950s about the dangers of smoking, before overwhelming medical evidence and the dangers of unpredictable damage awards brought them to the table decades later. By that time it was seen as the lesser evil for the industry.

Social-media companies hardly seem ready to cede the argument yet. They contend that the relationship between time that teens spend on their platforms and mental illness is weak, even as more countries and states look to follow Australia’s lead by restricting access to social media for children.

TD Cowen analyst Paul Gallant argues the real test will come with a case due to go to trial in San Francisco in August that was filed in 2023 by dozens of attorneys general, arguing Meta deceived the public about the safety of its products.

“This week’s verdicts aren’t legally binding on future judges and juries, but the SF case vs Meta this summer is key,” wrote Gallant. “This week’s rulings (especially if replicated in SF this summer) could lead Meta and Google to redesign their services for teens and explore financial settlements with other plaintiffs.”

A more immediate consequence could be to make large technology companies rethink their implementation of artificial-intelligence technology. There is a growing body of legal cases alleging AI-related harms, including psychosis, often citing heavy engagement with chatbots.

Tech stocks might not be “Big Tobacco,” but they are facing a similar moment. Expect the issue of addiction to be in the spotlight in an AI-driven age for social media.

Write to Adam Clark at [email protected]