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AI marketing regulation is an important aspect of protecting consumers from deceptive trade practices and unfair trade practices. The Federal Trade Commission (FTC) has provided guidance on deceptive practices related to AI tools and has taken action against businesses that engage in misleading or unfair practices. This article will discuss the deceptive trade practices and unfair trade practices related to AI marketing regulation, the penalties for violations, and best practices for compliance.
Deceptive Trade Practices
Under Section 5, a business engages in a deceptive practice if there is a statement, omission, or other practice that is likely to mislead a consumer acting reasonably under the circumstances, causing harm to the consumer. The FTC has identified several AI-related business practices that it considers to be deceptive to consumers.
Misleading consumers about the nature of AI tools and how they are used
AI tools, especially generative AI tools, can closely resemble human interactions. The FTC advises businesses to be cautious about misleading consumers about the nature of these interactions. For example, the FTC took action against an online dating service that created chatbots appearing as other human users to induce potential customers to sign up for the service. The FTC also warns against creating technology, such as deepfake videos and voice clones, designed to deceive.
Misleading consumers about what AI-based products can do
The FTC monitors companies that exaggerate claims about the capabilities or accuracy of their AI tools without supporting evidence. The agency has issued guidance on tools marketed as being able to identify AI-generated content, noting that unsupported claims could be deceptive. The FTC also cautions against marketing products or digital items created by AI tools as human-generated, and advises informing customers about the extent to which training data includes protected material.
Misleading consumers about AI tools’ collection and deletion of data
The FTC warns companies to be truthful when collecting information for AI or machine learning algorithms. For example, the FTC took action against a company that automatically activated facial recognition technology for users in most jurisdictions despite claiming it would only activate the feature upon user activation. The company also allegedly failed to delete user photos as promised upon account deactivation.
Unfair Trade Practices
A practice or act is unfair under Section 5 if it causes substantial injury to consumers that is not reasonably avoidable and not outweighed by countervailing benefits. The FTC considers the use of biased, discriminatory, or incorrect AI or automated decision-making systems as unfair if better oversight could have avoided these outcomes. The FTC offers guidance on unfair use of AI tools and emphasizes the following points.
Testing AI and automated systems for incorrect or harmful outcomes before deployment
The FTC alleged that a retailer engaged in unfair practices by using AI-based facial recognition technology trained on poor data. This led to false-positive alerts and harmful actions towards innocent consumers. The FTC advises testing AI and automated systems to ensure they function as intended and do not cause harm.
Avoid discriminatory decisions
In the same case mentioned above, the FTC alleged that the facial recognition algorithm disproportionately impacted people of color, leading to harmful outcomes based on race. The FTC warns that AI tools and algorithms operating in areas like housing or credit, where inaccuracies could significantly affect consumers, could violate civil rights laws enforced by the FTC.
Penalties
In cases of Section 5 violations, the FTC often obtains consent orders to prohibit further deceptive or unfair conduct. These orders require companies to adopt internal compliance measures and regularly report compliance to the FTC. Violation of consent orders can result in significant fines, exceeding $50,000 per violation per consumer and potentially totaling billions of dollars.
More recently, the FTC has required companies that trained AI tools with improperly obtained data to delete the algorithms or other AI or machine learning models created from that data. This penalty aims to discourage unlawful data collection by requiring the deletion of results obtained through such practices.
Best Practices
To demonstrate compliance with the FTC’s expectations regarding the fair and accurate use of AI tools, companies should take the following actions.
Carefully review claims about AI tools and their use
Companies should review claims to ensure they do not deceive consumers and should be transparent about the use of sensitive data. The FTC advises notifying consumers about how and when their personal information will be used to develop AI tools, especially for sensitive data like facial recognition or biometric data. Marketing claims should accurately reflect the abilities and limitations of AI tools.
Don’t give consumers the wrong impression
If AI tools mimic human behavior, companies should ensure consumers know they are interacting with an AI tool and not a human. If AI tools generate outputs like stories or graphics, companies should not imply they are organically generated.
Validate and revalidate AI models to avoid illegal discrimination
Companies are responsible for considering whether inputs to their AI models could lead to biased or discriminatory outcomes. The FTC warns against using data points that may serve as proxies for protected characteristics under antidiscrimination laws, disadvantaging certain ethnic groups. Companies should evaluate whether their models produce discriminatory outcomes and ask questions about data representation, bias, accuracy, and potential ethical concerns.
In conclusion, AI marketing regulation is crucial for protecting consumers from deceptive and unfair trade practices. The FTC provides guidance on deceptive practices related to the nature of AI tools, their capabilities, and data collection. Unfair practices include biased or discriminatory AI systems. Penalties for violations can be significant, and best practices involve reviewing claims, avoiding misleading impressions, and ensuring the validation and non-discriminatory use of AI models. Compliance with these practices is essential for businesses operating in the AI marketing industry.
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