Federal Trade Commission: The AI Watchdog

The rapid and evolving development of artificial intelligence (“AI”) has alarmed various government agencies, especially the Federal Trade Commission (“FTC”).  On November 21, the FTC approved an omnibus resolution simplifying the process for its staff to issue civil investigative demands (“CIDs”) in AI investigations.  This resolution comes on the heels of President Biden’s October executive order establishing new standards for AI safety and security.  Both actions may increase exposure for businesses involved in the use of products and services that use or are produced through AI.  Businesses should be knowledgeable about their use and marketing of AI and ensure their products and conduct do not pose a risk to consumers or competition.

The FTC has long been apprehensive of artificial intelligence and its potential implications for consumer privacy and safety.  The Commission views AI with caution due to its potential for scams, consumer data collection, and underlying discriminatory bias.  From a business perspective, the FTC believes AI could impede competition.  The Commission expressly views generative AI as something with “the potential to transform many industries and business practices,” and has stated that it will use its full authority to protect against its negative effects.

This resolution in particular may increase business exposure to government investigations and review.  CIDs are nonpublic, compulsory government investigations that agencies use to compel the production of documents and information to determine whether to pursue further action impacting the business.  Through these demands, the government can demand document production, investigate company information, and require testimony from individuals within the entity.  Although the FTC has always been able to issue CIDs, this resolution expands its staff’s authority to authorize CIDs specifically related to AI.

This omnibus resolution broadly defines the scope of AI-related acts and products and focuses on AI systems that make predictions, recommendations, and decisions.  The scope of AI-produced content is extremely broad and encompasses anything remotely connected to artificial intelligence.  This scope will remain in effect for ten years and will likely expand as AI development continues.

Given the FTC’s focus on the potential risks of AI to consumer privacy and competition, organizations should consider closely reviewing their marketing and public statements regarding AI and use of AI, in any context.  Even if a company is not actually using AI, making representations about AI in connection with a product or service affecting consumers could expose a company to investigation and penalties.  The Commission advises companies to prevent against discriminatory effects, be transparent about its technology, describe its products accurately, and outline which information is collected and how it is used.