Sweep Announced
On September 25, 2024, the FTC announced a new law enforcement sweep, Operation AI Comply, to crack down on “AI washing,” where companies exaggerated or made deceptive claims about their use of and capabilities involving AI. AI washing includes scenarios where a company misleads consumers or the market about whether a service or solution actually uses AI technology, exaggerates what an AI product can do, or seizes on AI hype to lure consumers into bogus schemes. The sweep focuses on companies that misrepresent or falsely advertise AI-as-a-service capabilities, such as unjustified claims that AI tools can open online storefronts on ecommerce platforms like Amazon, Walmart, and Etsy, purchase “done for you” online storefronts, or power those storefronts using AI tools to maximize profits. The sweep even targets one company’s claims that “the world’s first robot lawyer” powered by AI is capable of producing “ironclad” legal documents and can thus inexpensively supplant human legal expertise.
A Growing National and Transatlantic Trend
The FTC’s Operation AI Comply is part of a broader enforcement trend, including within the FTC, nationally, and internationally, focused on cracking down on AI washing. The FTC sweep is not the first time the agency has challenged AI claims, suing companies offering business coaching services in August 2023 for operating a money-making scheme that promised consumers significant passive investment income from e-stores powered by AI. In March 2024, the SEC announced its first two AI washing enforcement actions, initially targeting two investment advisers that made false or misleading statements about the use of AI in their operations. Following Deputy Attorney General Lisa Monaco’s March remarks regarding the DOJ’s heightened focus on “a company’s ability to manage AI-related risks as part of its overall compliance efforts,” in June, the DOJ joined the SEC in bringing charges against an AI recruitment startup that falsely claimed use of AI or machine learning tools in its service.
Similar efforts are underway in the UK, where the Competition and Markets Authority (CMA)’s consumer protection enforcement powers are set to significantly increase, following the introduction of the Digital Markets, Competition and Consumers Act 2024. Using these new powers, the CMA will be able to issue enforcement notices and fine companies as much as 10% of their annual global turnover for substantive breaches of consumer protection laws, including those relating to AI washing. The UK’s ads regulator, the Advertising Standards Authority, recently took action against a company which had exaggerated the efficiency of an app which claimed to be able to ‘Enhance your Photos with AI.’
Also in the EU, authorities such as the European Data Protection Supervisor have already looked into the issue of AI washing. Under the Unfair Commercial Practices Directive, which prohibits AI washing, Member States could impose fines in the maximum amount of at least 4 % of the trader’s annual turnover in the Member States concerned.
Key Client Takeaways
Entities considering incorporating AI capabilities into their products or investing into companies that integrate AI capabilities would be well advised to keep your AI claims in check because regulators are paying close attention. Though AI offers great promise for many businesses across a variety of industries, enthusiasm can become false advertising when statements exceed AI’s actual, present capabilities. As the FTC has warned, performance claims can be considered deceptive if they only apply to specific users and/or under certain conditions. Businesses should make sure their claims are clear and accurate, with substantiation available should the regulator come knocking, and should keep in mind that integration of AI capabilities may trigger new regulatory obligations (see California and EU) and increased scrutiny.
AI washing is a global issue, with regulators becoming ever more attuned to the fine line between acceptable methods of advertising in a headline-grabbing industry and exaggerating or overstating AI products’ capabilities. Freshfields is uniquely positioned to advise on such complicated, interconnected and quickly changing global challenges that your business may encounter. AI washing is just one of a broader set of issues where Freshfields can offer integrated capabilities to support cross-border AI-related concerns, whether regarding California’s legislative push on AI, the EU Product Liability Directive’s implications for Software and AI, deep dives on understanding the full effects of the EU AI Act, the UK’s Digital Markets, Competition and Consumers Act’s impact on pricing and false advertising claims, and more.
If you have any questions, do not hesitate to reach out to our international team of attorneys who can help your business navigate this dynamic landscape, including Christine Wilson and Nina Frant in the United States, Andrew Austin and Kate Collister in the UK, or Tobias Timmann and Lutz Riede in the EU.
