GABRIELLE ARGIMON—In the Delaware Court of Chancery lies one of the most notorious business lawsuits of our time. In April 2022, multi-billionaire Elon Musk entered into a merger agreement with Twitter, Inc. agreeing to purchase the company at a premium of $44 billion. Less than three months after publicly sharing plans to rid the site of spam and expose data manipulation, Musk terminated the agreement, and Twitter filed suit against him in July to force the acquisition. Now, Twitter’s top executives and the billionaire will face off in an upcoming mid-October trial before Chancellor Kathaleen McCormick, who will decide the fate of the massive social-networking site in Twitter, Inc. v. Musk.
While seller-requested specific performance is uncommon in merger & acquisition (“M&A”) cases, the circumstances here—and the unique history of the Delaware court—make it entirely possible that Twitter will prevail. First, Musk waived his right to due diligence in April, which no longer obliges Twitter to assist him in this process. Although Musk claims that Twitter is nevertheless obligated by the merger agreement to disclose details related to its user base, the parties disagree on whether information already exchanged meets contractual expectations. As for Chancellor McCormick, she stated last August that most of Musk’s requests for data were “absurdly broad.”
Second, Musk argues that Twitter falsely represented the number of “fake” accounts in its 2022 securities filings, claiming this was an “untrue statement of material fact” regarding Twitter’s monetizable users, which likely triggered a material adverse effect (“MAE”) under the agreement. The Delaware court has described a buyer’s burden to show a MAE as “nearly insurmountable.” In finding a MAE, the Delaware court rejects uncontrollable adverse events, third-party influences, and short-term decreases in quarterly earnings, unless the buyer shows with expert opinion that these effects “substantially threaten the overall earnings potential of the target in a durationally-significant manner.” Delaware case law reveals only one unique showing of a MAE in 2018 where a company violated FDA regulations, causing a long-term collapse in its value by over twenty percent.
Musk’s chances at victory, though uncertain, are not completely illusory. Musk might prove that Twitter committed some level of fraud if discovery indicates that Twitter harbors an undisclosed number of fake profiles so unpalatable that advertisers—upon whom Twitter relies—would jump ship. Additionally, requiring Musk to fulfill his promise would be a historic precedent in M&A litigation, since the value of this merger is over nine times the amount once famously enforced by the Delaware court when it required the food-processing giant Tyson Foods, Inc. to fulfill its agreement to acquire IBP, Inc. Lastly, whether this discovery drama in the Court of Chancery is Musk’s ultimate attempt to gain leverage over a renegotiated acquisition price is food for thought.
If Elon Musk acquires Twitter, how would this impact the company’s 215 million active daily users, and beyond? Musk calls Twitter the “de facto town square,” which is responsible for the instant amplification of breaking news, marginalized voices, and misinformation—the last of which is the product of algorithmic manipulation and has pressured tech giants to censor certain content. Believing Twitter’s content moderation practices to be excessive, Musk’s sweeping solution would involve replacing advertisers with Twitter Blue subscribers and open-sourcing Twitter’s algorithm.
To appreciate how consequential these changes could be, one must understand the nature of Twitter’s business model. Targeted advertising systems interpret user data collected through networking sites to cater feeds according to user preferences, and these systems maximize both social media impressions and sales for third-party advertisers. These systems depend on complex algorithms to predict human behavior and emotions from a variety of user activities, such as likes, comments, shares (or “retweets”), contacts, locations, follows, time spent online, and searches on third-party websites. In Q4 2021, advertising formed ninety percent of Twitter’s overall revenue. The company would take a significant blow if Twitter depended solely on its ad-free, paid subscription base.
While algorithms provide significant revenue to platforms and advertisers, they create echo chambers of controversial, hyper-partisan content leading to social conflict. Algorithmic content weaponization—specifically, the deliberate censorship of presumed undesired content—across many platforms has aided propaganda, international protests, extremist groups, and foreign election interferences. At first blush, advocates for the right to information and the healthy expression of ideals might support exposing the algorithms responsible for degrading political discourse.
However, open-sourcing Twitter’s algorithms might frustrate Musk’s plan for algorithmic transparency and accountability. First, algorithms alone give no insight on how Twitter’s codes were developed and trained to reveal biases. Rather, open-sourcing would allow bad actors to change Twitter’s algorithms and exploit Twitter’s strategies to amplify fake accounts more successfully—totally contravening Musk’s stated goal. Second, sharing Twitter’s proprietary algorithms would expose the company’s most valuable intellectual property to competitors. This requires limiting the algorithms selected for public scrutiny, which would undermine efforts for transparency. Furthermore, the average user is likely to interpret open-sourced algorithms through the politically polarized lens these formulas already created.
Nevertheless, if Delaware’s upcoming courtroom battle—and Musk’s reasons for making his offer in the first place—does any public good, it reminds us that we deserve effective algorithmic accountability. The fight against content weaponization is currently both an international and domestic mission. In April 2021, the European Union proposed the world’s first regulatory scheme to combat the dangers of artificial intelligence. Since many global networking platforms are based in the United States, domestic regulatory control would fortify this mission. Earlier this year, U.S. lawmakers re-introduced the Algorithmic Accountability Act of 2022, under which the Federal Trade Commission would require entities like Twitter to comprehensively assess and mitigate their algorithms’ negative impact on users. Ultimately, the power lies with voters to push for the reduction of algorithmic biases and slowly repair social discourse in the twenty-first century.
