Emerging Technology

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Settlement Wins Against Big Tech Should Underwrite Digital Resilience Funds

06.10.26 | 12 min read | Text by Gaurav Laroia & Charlotte Slaiman

Historically large penalties have been insufficient in crafting durable and effective deterrence against corporate wrongdoing. A better approach has bedeviled regulatory enforcers, legislators, attorneys general, and the judiciary. This challenge has been especially acute as enforcers have attempted to rein in the worst violations of the largest technology companies as we transition from the social media era to the AI era. Company scale and market power allow them to absorb even historic penalties as the cost of doing business, blunting the effectiveness of civil litigation and regulatory fines. 

The stakes for more effective deterrence and a more robust remedies toolkit are rapidly compounding. Many emerging AI related harms, including AI induced psychosis, maladapted socialization, deepfake driven bullying and harassment, suicide coaching, and declines in children’s literacy bear the hallmarks of a public health crisis or environmental disaster rather than just discrete consumer injuries. The scale of these externalities invites greater prosecutorial and regulatory scrutiny but also demands a more creative enforcement playbook. When historic fines against these companies and their predecessors disappear into general treasuries those funds remain largely inert instead of helping the public defend itself.

Injunctive relief and headline fines are important enforcement mechanisms but if enforcement is to reach its deterrent potential and protect the public in the advanced algorithmic era, we must recognize that penalizing corporate misconduct is only half the battle. By allocating funds from tech settlements to investments in broad-based consumer education, digital literacy, independent researchers, or new enforcement and investigatory infrastructure, state attorneys general and the judiciary can transform these otherwise inert dollars into a sustained and active defense against digital harms.  

Challenge and Opportunity 

The Federal Trade Commission’s historic $5 billion settlement with Facebook in 2019 is perhaps the clearest example of a broken enforcement model. At the time of its announcement, the penalty was the largest ever imposed by the FTC on a company for violating consumer privacy. Even as a majority of the Commission approved the settlement Commissioners Rebecca Slaughter and Rohit Chopra warned in their dissents that the penalty was unlikely to meaningfully deter the company or the broader market. They were right. The settlement imposed some compliance obligations, but none challenging its underlying business model of aggressive data harvesting. The company’s stock price rose after the announcement. Within a few years the FTC sought to reopen its privacy orders against Meta over subsequent alleged privacy violations, illustrating the failure of the penalty to sustainably alter corporate behavior. 

The Facebook settlement was hopefully the high watermark of a certain kind of enforcement paradigm. Fines should be larger. Behavioral and structural remedies should be stronger and imposed more often. Vital work has been done to turn that page and institute meaningful controls on data abuses and exploitative design. But, as we continue to use fines and penalties we have to confront a limitation in the enforcement model. When those dollars disappear into state or federal treasuries they do little to address systemic technological disruption. To protect the public, enforcers can put settlement dollars to work. We need to invest directly in the public so our society is prepared to handle this wave of technological disruption. 

Inert Fines, Federal Constraints, and State Action 

What if the $5 billion Facebook settlement had been put to better use? 

Imagine if even a portion of those funds had supported a sustained nationwide consumer education effort on the harms of social media use and digital literacy? A fraction of that money could support public education campaigns teaching about manipulative design practices and how we can take our autonomy back. The fine itself only punished the company’s past conduct on the supply side; investing that money in public education could have helped shift the demand side, changing the user behavior in the market that made these products profitable. 

Instead, like most federal settlements, by law that money flowed straight from Facebook directly into the federal treasury. Federal enforcers have limited ability to direct those funds towards targeted public education or resilience efforts (with the notable exception of the Consumer Finance Protection Bureau (CFPB) which is allowed to direct civil penalties to a special consumer education fund).

While Federal regulators like the Federal Trade Commission and the Department of Justice have obtained some landmark penalties, state attorneys general have increasingly become the primary defenders of Americans’ digital rights. In recent years the states have secured billions of dollars through aggressive enforcement: A $700 million settlement over Google’s app store practices; $391.5 million in a multistate effort over deceptive location tracking; $1.4 billion from Meta for “using facial recognition without users’ permission”. The list goes on. 

Crucially, state attorneys general have different constraints on how civil penalty funds may be used. Many states have their own Unfair or Deceptive Acts or Practices (UDAP) statutes, in addition to a variety of consumer protection laws. Under common law practice and state statutes many AGs have more leeway in directing their settlement funds to organizations and causes “consistent with the objectives and purposes of the underlying cause of action”. Through multistate settlements, AGs have repeatedly demonstrated their ability to coordinate enforcement and reshape industry practices on a national scale. 

But, it’s fair to ask: how much will even a $1.4 billion payout change a company’s underlying market incentives and consumer behavior? What might that $1.4 billion accomplish if even a portion were invested in changing consumer behavior through consumer education, digital literacy, independent research, and resilience building? 

Crafting forward looking structural and behavioral remedies in a fast-changing industry is important and difficult. It was only in the past few years, decades into the internet era, that the Federal Trade Commission embraced data minimization and algorithmic deletion as the appropriate remedies for data abuses. Finding the appropriate remedies for AI related harms is crucial work, but will take time. If we put the dollars to work, negotiated settlements can help build deterrence and prevention right now.

Successful Lawsuits Against Defective Algorithms, Addictive Product Design

Recent state-level actions prove we can change the enforcement paradigm. Two recent cases target the root of these digital harms: defective algorithms and addictive product design. By framing these platforms as defective products engineered to exploit children, enforcers have bypassed the traditional tech liability shield. This breakthrough could open the floodgates for systemic accountability. 

In March, a California jury awarded a 20 year old plaintiff $6 million after finding that Meta and YouTube negligently designed their platforms and caused severe mental health crises under a theory of defective products liability. In the same month a New Mexico jury levied a historic $375 million penalty against Meta for violating the state’s Unfair Practices Act by misleading parents about the safety of their products thereby enabling child exploitation.

These verdicts could be bellwethers for a wave of impending litigation and settlements. Currently, a historic and “sprawling” set of consolidated lawsuits, known as Multidistrict Litigation (MDL) 3047 is proceeding in Federal Court. This lawsuit includes 41 attorneys general, hundreds of school districts, thousands of individual personal injury suits, all consolidated and contesting the “‘unreasonably dangerous’ design of social media platforms.” 

These cases, and others, mean billions of dollars may soon be changing hands. The critical policy question for state enforcers is whether those funds, after class members and direct victims are made whole through restitution, will disappear into general treasuries or be used to address the real problems at hand.

Plan of Action 

Putting Settlement Dollars to Work

We propose putting settlement dollars to work through the creation of a Digital Resilience Fund. This is not a radical departure from current enforcement norms. Rather, it’s a call to accelerate adoption of a model, such as the Truth Initiative, which informs this proposal,  that’s been successfully deployed across other industries, as seen in Table 1.

In each of the cases in Table 1 enforcers recognized that penalties alone weren’t sufficient to ameliorate the harm from the underlying legal violations. Settlement dollars disappearing into general treasuries would have been a disservice. As victim advocates frequently note, one of the most profound ways to honor victims is by preventing others from becoming victims, whether the threat is from opioids, unlawful financial practices, smoking, or pollution.

Further, the time to act is now. The public is already convinced there’s a problem with AI accountability. Recent Gallup polling reveals a fascinating paradox regarding the next generation of consumers. While over half of Generation Z uses generative AI on a weekly basis, their optimism about the technology is plummeting. They are increasingly anxious about the technology’s impact, with majorities expressing fear that AI will come at a high cost to human creativity, critical thinking, and learning. The public can feel the ground shifting, but lacks the tools to fight back.

Recommendation 1. Establish a Digital Resilience Fund

The previous examples of settlement agreements all exemplify an important principle: settlement dollars ought not to be inert. Directing the spend on those dollars is an additional tool in the toolkit of deterring corporate wrongdoing, mitigating digital and AI harms, and hardening society to deal more effectively against disruptive technology. An educated public acts as a deterrent and could help steer the market towards deploying technologies that serve, rather than exploit their users. 

State AGs alone, or in concert with each other, or with legislators, can begin redirecting a portion of major technology settlement proceeds into a fund focused on education, research, and harm mitigation related to AI. These funds could be administered through an independent nonprofit (like the Truth Campaign), through an existing public foundation structure, or through state-level grant programs (like the Opioid Abatement funds). The precise institutional form is less important than the principle that settlement or fine dollars tied to AI related harms ought to be used to build society’s capacity to stop or withstand those harms. 

What a Digital Resilience Fund Could Do

Depending on the size of the settlement and the scope of the underlying harm enforcers and lawmakers could scale these funds across a range of initiatives:

1. Fund Counter-Marketing and Awareness Campaigns: A fund could drastically modernize consumer education around technology. The Truth Initiative showed that a well funded and sophisticated campaign can change behavior. To compete against billion-dollar engagement engines, we need compelling communications that resonate with the public. We envision a “touch grass” message delivered with cultural fluency on the social platforms where harms occur – meeting the moment and helping people make different, more informed, choices.
   
2. Support Independent Research and Monitoring: Money for research means we’ll be equipped with a better understanding of how these tools affect behavior and mental well-being. Researchers could also identify evidence-based interventions that help save lives. The research could then be translated into public education materials and materials for evidence-based remedies, regulation, and legislation.
   
3. Support Digital Literacy and AI Education at Scale: Counter marketing can raise awareness, digital literacy can build skills for this media era. This could mean grants to schools, libraries, or community organizations to teach students, educators, and families how AI systems can shape behavior, how to navigate a changing information environment, or how deepfakes can erode trust. As documented by the OECD, a whole-of-society approach to media literacy can be extremely effective against disinformation.
   
4. Act as a Nimble Response Mechanism: As AI tools become more autonomous and agentic, new risks will emerge faster than legislation or litigation can mitigate them. A resilience campaign could launch educator toolkits or literacy campaigns as a first step while legislative efforts and litigation strategies are ongoing.
   
5. Educate and Protect the Labor Force: AI and algorithmic harms will extend beyond social media. For settlements involving hiring software, worker surveillance, or discriminatory models, public education campaigns could also educate workers about their rights. Do professionals who work primarily on computers know that by “using AI” in their daily work, they may be training their replacements? Do they know how to communicate with their coworkers without being surveilled so they can take collective action?
   
6. Establish a multistate investigatory and research apparatus: As comprehensive federal tech regulation remains stalled by gridlock, state enforcers have become the primary defenders of consumer rights. By pooling settlement resources, a coalition of states could establish shared or parallel investigatory infrastructure. Recent initiatives like the Governor’s Public Health Alliance shows that states already have the logistical framework to pool expertise and coordinate parallel responses when federal infrastructure is lacking. This would provide state regulators, AGs, and legislators the dedicated technical expertise, auditing capacity, and ongoing monitoring of the market needed to support future litigation and evidence-based regulation without waiting for federal action.

Together, these recommendations all work to influence cultural change about how our society views AI and evaluates corporate harms. Luckily, we have evidence that this kind of investment can be successful.

The Evidence for Culture Change Efficacy

It’s easy to look back at the 1980s “Just Say No” era and wonder if public education campaigns can actually do anything to change entrenched consumer behavior. But the data tells a different story. Well-funded and targeted campaigns have made a difference. 

The Truth Initiative is the gold standard. Instead of dryly lecturing teenagers, the campaign exposed the manipulative marketing tactics of tobacco executives and helped cause a collapse in teen smoking – dropping from nearly 23% in 2000 to less than 2% today. Peer reviewed studies have shown that in just one year the campaign prevented 300,000 kids and young adults from becoming smokers. 

The collapse in smoking is a generational public health accomplishment, but other interventions around the world have shown that public education works: 

• Finland has used a whole of society education approach for decades to combat disinformation.
• The Real Cost: The FDA has used digital and social media advertising to drive declines in teen vaping.
• This Girl Can: The UK tackled the gender gap in sports, inspiring over 1.6 million women to start exercising by dismantling cultural stigmas.
• Time to Change & It’s Not OK: The UK and New Zealand successfully used massive awareness campaigns to measurably reduce mental health discrimination and shift community norms around family violence.
• Dumb Ways to Die: Australia used a humorous digital campaign to secure a 20 percent drop in transit accidents.

When combined effectively, litigation, regulation, and education have a proven track record of changing social behavior. Protecting the public from the tech industry’s predatory business models and the next wave of AI harms is an enormous challenge, but we have the evidence that trying to build a healthier digital culture is absolutely worth the effort.

Guardrails and Guidance

To maintain public trust and to prevent the misuse of funds any Digital Resilience Fund or similar initiative collects, it must operate under a narrow mandate focused on the remediation and prevention of AI-related harms and follow the best practices set forward in previous settlements. For example, the National Opioid Settlement Agreement provided a list of approved uses for funds focused solely on abatement. Other states have instituted public dashboards to track spending of settlement dollars in a transparent way. 

While many AGs already have the authority to direct these funds through settlement agreements, ultimately codifying them through state legislative frameworks may provide greater predictability and transparency for their long-term operation. Legislation may also be necessary to allow fines and penalties, not just settlements, to contribute to the fund in some states. 

Conclusion 

An informed public is a valuable partner in deterring corporate malfeasance.

Fines must be large enough to penalize lawbreaking, and structural and behavioral remedies must aggressively dismantle harmful corporate practices, especially with regards to the growing power of AI companies. These are the core instruments of any effective enforcement toolkit. However, if we really want to change these companies’ behavior, we have to change the market they operate in.

A well funded digital literacy and culture campaign could step into this chasm. By giving ordinary people the skills to spot deepfakes, resist manipulative algorithms, and protect their mental health, we empower them to demand safer products.

State attorneys general have an incredible opportunity to build on the historic work they have already done. From the Tobacco Master Settlement to the Opioid abatement funds, the states have proven themselves as the primary architects of massive, society saving interventions. 

As algorithmic harms increasingly mirror environmental disasters and public health crises, our response must be equally systemic. The next wave of technology settlements offers a generational opportunity to look beyond the standard playbook. Rather than treating historic recoveries as a simple windfall for state treasuries, enforcers must deploy these funds to protect our communities and build a stronger foundation for our democracy.