Let’s Get Informed About the INFORM Act

By Daniel Kaufman and Michael Ingram on June 1, 2023 Posted in INFORM Act

Congress sometimes passes legislation in a quite dramatic manner, with countless hearings, headlines, statements, and discourse. Other times, things happen just a bit more quietly, with language appearing in an omnibus appropriations bill, for example. The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Act or the Act) is a prime example of the latter. The Act is quite significant for platforms that host third-party online marketplaces, requiring the collection and disclosure of important seller information to ensure transparency. At its core, the Act is the result of broad concerns about the sale of stolen or counterfeit goods online.

Endorsements and Actual Usage – A Deep Dive into the FTC and State Attorneys General Lawsuits Against Google

By Daniel Kaufman and Victoria Weatherford on May 24, 2023 Posted in FTC

Texas Attorney General Ken Paxton recently announced his office has reached an $8 million settlement with Google of its lawsuit alleging deceptive radio disc jockey advertisements for the Google Pixel 4 smartphone. You might remember that we previously reported on this lawsuit when it was filed, in January 2022. While Texas was first out of the gate with its lawsuit against Google, the Federal Trade Commission (FTC) and a coalition of six states later sued Google and a large media company for the allegedly deceptive radio ads and settled their lawsuit first for a combined total of $9.4 million in penalties to the states. The state of Texas took advantage of the multistate lawsuit to settle with the media company (along with Arizona, California, Georgia, Illinois, Massachusetts and New York, which settled with both companies) but continued to pursue its solo lawsuit against Google until last week.

FTC’s 20th Public Meeting – Privacy, Privacy and More Privacy

By Daniel Kaufman and John P. Ferry on May 22, 2023 Posted in FTC

Fingerprint Biometric Digital Scan Technology.

It has been a while since we last gathered for one of the monthly public meetings of the Federal Trade Commission (FTC or Commission). Clearly, the monthly nature of the meetings is questionable, but then again, there are only so many policy statements that an agency can issue. When we last met in March 2023, former Commissioner Christine Wilson had just loudly announced her exit from the Commission and the agency had launched a few new studies that won’t see the light of day for quite some time. So we return to an agency that – for the first time in decades – has only Democrat commissioners and no Republicans.

And for today’s meeting two items were on the agenda: a new policy statement on biometric information and some follow-up on the Health Breach Notification Rule.

Holidays and Marketing May Not Always Be a Perfect Match

By Daniel Kaufman on May 8, 2023 Posted in FTC

The other day I was trying to make heads or tails of a new Federal Trade Commission announcement when I heard the familiar sound indicating that a new email had arrived. Nothing out of the ordinary. The email was from a small company I had done business with, and the subject line said, “Your mom called.” It was a bit of a jarring message for me to receive, given that my mom had passed away just six short months ago and was not likely to be calling these days. I expressed my concerns to the company that had sent the email, and not long after, a deeply apologetic email was sent to me and the rest of the email distribution list.

Deciphering the Recent FTC Trilogy of Blog Posts on Artificial Intelligence

By Daniel Kaufman on May 2, 2023 Posted in AI

Bringing law enforcement takes a lot of time – many, many months of investigation, analysis, negotiations and process must occur before an agency brings a law enforcement action. But blogs can get out the door far more quickly. And the Federal Trade Commission (FTC) has been blogging fast and furiously – one could say obsessively – about the hot topic of generative artificial intelligence (AI).

It would be an understatement to say that there has been an explosion of discussion about and consumer uptake of a wide range of new and exciting AI tools. The change has been dramatic and quick, and it has not escaped the notice of regulators.

So let’s take a look at the three recent FTC AI blogs discussing how the agency anticipates assessing whether AI tools are being marketed or used in ways that could violate the FTC Act.

Step one for the FTC is to lay the groundwork and emphasize that the same rules apply whether we are talking about AI or mere human decision-making. This is FTC 101, and companies are responsible for any claims that they are making about what their AI can or cannot do. How accurate is your AI? Is it really better than other products out there? Are you creating any risks? And, of course, if the FTC comes knocking, it’s not going to be sufficient to say that the technology “is a ‘black box’ you can’t understand or didn’t know how to test.”

Step two for the FTC is to go broader and make sure that companies making AI tools widely available are thinking through the ramifications – both good and potentially bad – of what they are doing. For this round, the focus is on what people are using your AI tools for and whether there are some bad and unlawful things happening as a result of bad actors using your tools. And yes, there can be legal theories of enforcement for the agency if others are using your tool to deceive, even if that was not your intent. The FTC sets forth a laundry list of possible harms:

Evidence already exists that fraudsters can use these tools to generate realistic but fake content quickly and cheaply, disseminating it to large groups or targeting certain communities or specific individuals. They can use chatbots to generate spear-phishing emails, fake websites, fake posts, fake profiles, and fake consumer reviews, or to help create malware, ransomware, and prompt injection attacks. They can use deepfakes and voice clones to facilitate imposter scams, extortion, and financial fraud. And that’s very much a non-exhaustive list.

And step three for the FTC is to go as broadly as possible and flag issues and concerns that are at the cutting edge of consumer protection, primarily by framing them as practices that could be considered “unfair” by the agency. The blog broadly discusses AI tools that “can influence people’s beliefs, emotions, and behavior.” This, of course, is starting to sound quite a bit like the FTC’s somewhat obsessive focus on dark patterns, and the latest blog owns up to that. Some of the areas flagged where the FTC could arguably assert its unfairness authority are chatbots that confidently report questionable answers or answers that are incorrectly perceived to be neutral or impartial. The FTC specifically flags the use of AI tools that could steer consumers into “harmful decisions in areas such as finances, health, education, housing, and employment.” The FTC also flags the potential existence of undisclosed advertising within a generative AI feature as another area of concern.

There is, of course, a big difference between somewhat grandiose statements in a trilogy of blog posts and actually bringing law enforcement based on those theories. Now, we have written quite a lot about the FTC pushing the bounds of its authority these days, and we are quite confident that there is extensive discussion within the agency about what theories to focus on and what targets to pursue. But if you are involved with marketing or the provision of new and exciting AI tools, take a close look at the FTC trilogy of blog entries on the topic. There is a lot to digest and many issues that are worth some serious consideration.

And, of course, I did have to ask a certain AI tool when the FTC would bring its first case involving generative AI issues. The answer was a bit wishy-washy but accurate, stating:

Given the increasing prevalence of AI and the FTC’s stated focus on technology and data privacy, it is likely that the agency will continue to take actions related to AI in the future. However, it is impossible to predict when and what specific actions the FTC will take.

FTC Brings the Supreme Court Together Again

By Daniel Kaufman and Randal M. Shaheen on April 17, 2023 Posted in FTC

For those of you who worry about the partisan divide in our country, it’s nice to know that the Federal Trade Commission (FTC or Commission) has once again brought an often sharply divided Supreme Court to unanimity. Unfortunately for the FTC, that unanimity has again come at the agency’s expense. Two years ago, the Supreme Court unanimously held that the FTC lacked the redress authority it had often invoked under Section 13(b) of the FTC Act. That ruling, among other things, has resulted in the agency conducting an unprecedented amount of rulemaking and blanketing the country with notice of penalty letters.

Late last week the Supreme Court held that a party seeking to challenge the constitutionality of the FTC’s administrative hearing process need not first raise those arguments in the administrative proceeding before moving to federal court. The case was consolidated with another, similar case involving the SEC. The decision can be reviewed here. The defendant in the FTC matter is arguing that the FTC’s administrative hearing process is unconstitutional because the tenure protections afforded to administrative law judges render them insufficiently accountable to the president, violating separation of powers principles, and also because of the combination of prosecutorial and adjudicatory functions in the FTC. These important substantive issues were not decided by the Supreme Court, but the decision expedites the ability of other federal courts to address these existential issues regarding the agency.

Pursuant to a congressional statute, a party objecting to the Commission’s initiation of administrative proceedings is supposed to bring those objections to the agency before bringing any such objections to federal court, and the agency argued that the plaintiff’s constitutional objections should have been brought initially to the Commission rather than to federal district court. (Gee, we wonder what the Commission would have decided.) The Court disagreed with the Commission, finding that deferring federal court review of the challenge would deprive the complainant of their right not to undergo protracted adjudicatory proceedings, that the challenge is collateral to the purpose of the administrative review process and that the claims were outside the Commission’s expertise.

Of course, the Court’s opinion is purely procedural and does not portend how the Court might rule on the constitutional challenges themselves, but two concurring justices hinted at their views. Justice Clarence Thomas suggested that he views it as objectionable whenever private rights are adjudicated administratively, while Justice Neil Gorsuch suggested that district courts should always have jurisdiction to entertain challenges to agency proceedings. It may be years away, but surely the Commission is hoping not to align all the justices against it again. An unfavorable ruling on the merits would complicate the Commission’s redress woes further, as proceeding administratively first and then obtaining redress in a separate federal court action was the primary redress path that the Court did not strike down in AMG.

FTC Reverts to Penalty Letters, Threatening 670 Companies with Penalties for Unsubstantiated Health Claims and Maybe More

By Linda A. Goldstein, Daniel Kaufman, Amy Ralph Mudge and Randal M. Shaheen on April 13, 2023 Posted in FTC

Advertisers likely recall that back in 2021, the Federal Trade Commission (FTC) created quite the stir when it sent to more than 700 companies warning letters that threatened penalties if companies engaged in deceptive endorsement practices. In a continuation of these pot-stirring practices, the FTC has now notified 670 companies that they may be subject to some serious civil penalties if they make deceptive health or disease claims for any products.

The letters themselves are called Notice of Penalty Offense (Notice) letters, and since it has been awhile since we discussed the topic, we will provide a brief recap of the legal authority that the agency is invoking. In short, the Notice sets forth specified practices from prior litigated commission adjudications that – the commission alleges – have been found to be deceptive or unfair and can allow for civil penalties against companies with “actual knowledge” that these practices have been deemed deceptive or unfair. It is a somewhat unusual authority, but it is in the FTC’s statute and it has been used previously albeit infrequently. And the “actual knowledge” standard explains why the FTC is sending out these letters, the theory being that if you have the letter, you now have actual knowledge.

The current letters are pretty straightforward and set forth the following health-related areas in which the agency indicates it may be able to seek penalties:

The Potential Risks of ChatGPT and Other Generative AI

By Lauren Bass on April 11, 2023 Posted in AI

“Shall we play a game?” Those innocuous words “spoken” by Matthew Broderick’s computer in John Badham’s sci-fi techno-thriller War Games stunned audiences at the time. A computer that could “talk” and “think” and engage in conversation?!? This was the height of science fiction. Well, with the recent release of generative artificial intelligence (AI) tools, specifically in the form of ChatGPT and other predictive natural language processing (NLP) algorithms, science fiction has once again become reality.

Companies from Microsoft to Google and Instacart to Kayak have begun to incorporate and build upon this technology, originally developed by OpenAI. These tools can be incredibly beneficial to businesses, but they also carry risks.

What Is ChatGPT?

Compliant Consumer Review Practices

By Amy Ralph Mudge and Victoria Weatherford on April 11, 2023 Posted in Webinar

Join Amy Ralph Mudge and Victoria Weatherford on April 20 at 12:30 p.m. ET as they outline what you need to know to make sure your solicitation, moderation, and posting of reviews pass muster with the FTC, state AGs, NAD, and the courts. During this webinar, they will also discuss troubleshooting the use of third-party review websites. This session is the fourth event in our monthly 2023 Advertising CLE Webinar Showcase and is approved for 1.0 hour of CLE credit.