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United States: FTC recommends transparency when selling digital products and developing AI tools

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In brief

What rights does a consumer have to a digital product that they purchase? What control does an author have over their creative works? What obligations do others have to you when they use your data to develop new products?

None of these questions are new, but the recent proliferation of artificial intelligence (AI) tools, particularly generative AI (GenAI) tools, has brought these questions to the forefront of ongoing conversations about the role that AI will play in the marketplace. As an advocate for and enforcer of consumer protection laws, the US Federal Trade Commission (FTC) recently offered reminders and recommendations for companies offering digital products and AI tools.

In depth

Manage Consumer Expectations About Their Rights to Digital Products

Upon purchasing a product, a consumer may have certain expectations about their rights to that product. However, sellers, particularly of digital products, may limit those rights in ways not readily apparent to the consumer. Such limitations could include selling the product only under a limited, revocable license, limiting the right to repair the product, retaining the ability to control software updates or functionality of the product, providing access to product features only via subscription, changing terms of use after purchase, or restricting access to the product after death of the consumer. Regardless of the types of restrictions sellers place on their products, the FTC recommends making those restrictions clear to consumers prior to purchase. Failure to be up front about any restrictions could make a seller liable for deceptive practices in violation of the FTC Act.

Avoid Deceptive Practices With Respect to Creative Works

Similarly, authors may have certain expectations about their rights with respect to their creative works. For example, they may expect that others should not be permitted to pass off their work as created by that author. As a matter of consumer protection, the FTC seeks to prevent others from committing such deception. But GenAI tools make it both easier and faster to create works that are harder to distinguish from the works of another author. Try using one of the GenAI tools currently available to write a haiku in the voice of Langston Hughes or reproduce a photograph as a painting in the style of Frida Kahlo and you may be surprised how convincing the tool is at mimicking Hughes’ voice or Kahlo’s style.

Authors may also expect to retain full ownership of creative works that they publish online. Whether that is true depends on the applicable publishing site’s terms of use. Failure to make clear and to honor the authors’ rights to their published content under the terms of use may be considered a deceptive practice violative of the FTC Act.

Consider Being Transparent About Training Sources for GenAI ToolsGenAI tools are developed by using data to train an algorithm. The content and quality of the data influences the effectiveness of the tool. In their quest to develop GenAI tools able to perform a variety of tasks, developers pull from a variety of data sources, which may include creative works such as poems, movie scripts, blog posts, and even news articles, as well as personal information protected by privacy laws. From a consumer protection perspective, the FTC is concerned that lack of transparency about training data sources may be deceptive because individual and corporate users are not able to fully evaluate whether a given GenAI tool is suitable for their needs. 

Conclusion

While the rise of AI has resurfaced old questions about ownership, control, and product development, the FTC’s reminders and recommendations to avoid deception by clearly and accurately communicating with consumers and creators are evergreen. Baker McKenzie’s AI practice stands ready to assist companies as they navigate these old issues arising from new technologies.

For related updates, subscribe to Baker McKenzie’s Connect on Tech blog and podcast series covering a broad range of topics such as data privacy and security, cybersecurity, digital innovation and transformation, generative AI and machine learning and other topics. The podcast features 10-minute interviews with Baker McKenzie attorneys across the globe to discuss practical tips and the impact of data and technology on business.

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Author

Adam Aft helps global companies navigate the complex issues regarding intellectual property, data, and technology in M&A and technology transactions. He is the lead of the Firm's North America Technology Transactions group and co-leads the group globally. Adam also served as a law clerk to the Honorable Leslie H. Southwick of the US Court of Appeals for the Fifth Circuit and the Honorable Theresa L. Springmann of the US District Court for the Northern District of Indiana.

Author

Brian Hengesbaugh is Chair of the Firm's Global Data Privacy and Security Business Unit, a Member of the Firm's Global IP Tech Steering Committee, and a Member of the Firm's Financial Institutions' Group. Brian is listed in The Legal 500 Hall of Fame and was recognized as a Regulatory & Compliance Trailblazer by the National Law Journal. He is also listed as a Leading Lawyer for Cyber law (including data protection and privacy) in The Legal 500 and is listed in Chambers. Formerly Special Counsel to the General Counsel of the US Department of Commerce, Brian played a key role in the development and implementation of the US Government’s domestic and international policy in the area of privacy and electronic commerce. In particular, he served on the core team that negotiated the US-EU Safe Harbor Privacy Arrangement (Safe Harbor), and earned a Medal Award from the US Department of Commerce for this service. In addition, Brian participated on behalf of the United States in the development of a draft Council of Europe Treaty on Cyber Crime, and in the negotiation of a draft Hague Convention on Jurisdiction and the Recognition of Foreign Judgments. Brian has been quoted in the Wall Street Journal, New York Times, Forbes, CNET, Slate Magazine, Compliance Weekly, BNA Bloomberg, PCWorld and other news publications on global privacy and security issues.

Author

Teisha Johnson is a member of Baker McKenzie's antitrust practice in Washington, DC. She advises clients on a wide range of antitrust and e-discovery matters, and has considerable experience counseling clients in government investigations, proposed mergers and acquisitions, compliance, and litigation matters.

Author

Nandu Machiraju is a counsel in Baker McKenzie's North America Antitrust & Competition Practice Group. He has significant industry experience in antitrust matters affecting the healthcare, pharmaceuticals, chemicals, mining, and technology sectors. Nandu advises clients on a wide range of antitrust matters and has considerable experience counseling clients in government investigations, proposed mergers and acquisitions, conduct matters, compliance, and litigation. Before joining the Firm, Nandu worked as an attorney with the US Federal Trade Commission (FTC). Most recently, Nandu was an attorney in the Bureau of Competition’s Litigation Group where he served a critical role on merger litigation challenges in the hospital and medical-device industries. Before that, he served as an Attorney Advisor to FTC Chairman Joseph J. Simons where he advised on enforcement, appellate advocacy, policy, and congressional relations as well as matters relating to agency management. Nandu also was an attorney in the Mergers I Division where he worked on mergers involving pharmaceuticals, medical devices, retail pharmacies, and cement plants. Before joining the FTC, Nandu was an associate at an international law firm where he practiced antitrust and competition law in that firm’s Washington, D.C. and Brussels offices.

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