The FTC has clarified that its actions are not intended to attack or regulate AI standing alone, for which the FTC has not yet been given the power by Congress to address.

As part of its ongoing enforcement efforts against allegedly deceptive and misleading uses of artificial intelligence, the Federal Trade Commission (FTC) disclosed five new enforcement actions on September 25, 2024, against companies across various industries that either allegedly made fraudulent claims about their AI resources or offered AI services that could be used in misleading or deceptive ways.

According to the FTC, the growth and increasing prominence of AI-fueled services and products has led firms to “seize on the hype surrounding AI” by using it to “lure consumers into bogus schemes,” and also by “providing AI powered tools that can turbocharge deception.” FTC Chair Lina M. Khan stated further that “using AI tools to trick, mislead, or defraud people is illegal” and that the FTC’s enforcement actions “make clear that there is no AI exemption from the laws on the books.” “By cracking down on unfair or deceptive practices in these markets,” Khan continued, the “FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected.” 

The five new additions to the growing list of cases announced under the FTC’s AI-enforcement sweep, Operation AI Comply, consist of claims against:

• DoNotPay, a company that offered services called “AI Lawyer,” which the FTC alleges falsely claimed to be a more affordable substitute for the counsel of a human lawyer, advertising to consumers that they could “sue for assault without a lawyer” or “generate perfectly valid legal documents in no time”;
• Rytr, which, since April 2021, has marketed an AI “writing assistant” service that paid subscribers could use to generate unlimited consumer reviews based on very limited and generic input, which were then allegedly being used to create false and misleading online consumer product reviews;
• Ascend Ecom, which allegedly defrauded consumers of at least $25 million by advertising “cutting edge” AI-powered tools that it falsely claimed would help consumers earn thousands of dollars per month in passive income by opening online storefronts on ecommerce platforms like Amazon, Walmart, Etsy and TikTok, but which rarely panned out;
• Ecommerce Empire Builders, a business opportunity scheme that allegedly falsely claimed to help consumers build an “AI-powered Ecommerce Empire” by spending thousands of dollars on training programs or purportedly custom-made online store fronts which did not come to fruition; and
• FBA Machine, a “business opportunity” scheme that allegedly falsely promised consumers that they would make guaranteed, risk-free income of up to seven figures through online storefronts that utilized AI-powered software.

Some of these actions have already been resolved. For example, DoNotPay agreed to a proposed order requiring it to pay $193,000 and to provide notice to consumers who subscribed to the service between 2021 and 2023 warning them of the limitations of law-related features on the service.

The FTC’s action against Rytr is unique because, unlike the other four actions, the alleged misconduct was being perpetuated by Rytr’s customers (i.e. not Rytr itself). The customers were using the software to create false and deceptive consumer reviews that could mislead potential customers who relied on the reviews in purchasing products. FTC Commissioners Melissa Holyoak and Andrew Ferguson issued a dissenting statement to the Rytr action, in which they stated “[t]reating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud is inconsistent with [the FTC’s] precedents and common sense” and “threatens to turn honest innovators into lawbreakers and risks strangling a potentially revolutionary technology in its cradle.”

The FTC has clarified that its actions are not intended to attack or regulate AI standing alone, for which the FTC has not yet been given the power by Congress to address. Specifically, regarding the case against DoNotPay, Holyoak issued a statement―which Khan joined―clarifying that the FTC’s action is not intended to make consumers feel compelled to only use expensive professional services or signal that companies should refrain from offering innovative products that ease the access to affordable legal work, but rather to exercise the FTC’s “important role in eliminating deception from the market so that honest firms can compete to offer consumers innovative, trustworthy products.” Ferguson stressed that he wished for the FTC to hold generative AI companies “to the same standards for honest-business conduct that apply to every industry,” but that the FTC “should not succumb to the panicked calls for [it] to act as the country’s comprehensive AI regulator.”

Takeaways

Enforcement of AI platforms, devices and services is rapidly evolving in an attempt to keep up with the technological developments in this space. In particular, life sciences and medical technology developers should be aware of these actions, as these highly regulated industries have seen more widespread adoption of AI tools, including cognitive automation, than many other sectors. Indeed, earlier this year, the U.S. Department of Justice (DOJ) scrutinized the use of AI that prompts providers to recommend certain medications based on patient records. DOJ reportedly subpoenaed pharmaceutical and digital health companies to learn more about generative AI technology’s role in potentially facilitating anti-kickback, false claims and other anti-competitive conduct. Businesses, particularly those in these industries, should expect that the FTC will continue to focus its efforts on preventing potentially deceptive, fraudulent or anti-competitive uses of AI under its Operation AI Comply enforcement focus.

For More Information

If you have questions about this Alert, please contact Sean P. McConnell, Daniel G. Selznick, Emily Bley, any of the attorneys in the Antitrust and Competition, Shannon Hampton Sutherland, Sean K. Burke, Jiazhong (Jason) Luo, Ph.D., Elizabeth G. Hodgson, any of the attorneys in the Life Sciences and Medical Technologies Industry Group, any of the attorneys in the Artificial Intelligence Group or the attorney in firm with who you are regularly in contact.

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