On September 25, the Federal Trade Commission (FTC) announced that it brought five actions against companies it accused of using “artificial intelligence as a way to supercharge deceptive or unfair conduct that harms consumers.”  These actions, which the FTC indicated are part of its new enforcement sweep called “Operation AI Comply,” reflect the FTC’s repeatedly stated intention to exercise its authority under the FTC Act and other rules in connection with AI-related products and marketing claims. 

The five actions rely on a range of FTC authorities and target several different forms of conduct. 

  • DoNotPay: The FTC brought an action against DoNotPay, which purports to offer automated legal services, on the theory that it violated the FTC Act by making false claims that its product could substitute for the expertise of a human lawyer.  A proposed settlement would require DoNotPay to pay $193,000, provide notices to past subscribers, and avoid making claims about its ability to substitute AI for professional expertise without proper evidence.
  • Ascend Ecom: The FTC brought an action against Ascend and other defendants under the FTC Act and Business Opportunity Rule based on allegedly false claims that the company’s “AI-powered tools would help consumers quickly earn thousands of dollars a month in passive income by opening online storefronts,” and the company’s alleged failure to honor a money-back guarantee that it had extended to some customers.  The FTC also alleged that the defendants had violated the Consumer Review Fairness Act by using non-disparagement clauses to restrict customers from leaving accurate reviews of its services.
  • Ecommerce Empire Builders: The FTC brought an action against Ecommerce Empire Builders and other defendants under the FTC Act and Business Opportunity Rule based on alleged misrepresentations regarding the likely profitability of online stores “powered by artificial intelligence” that are sold by the defendants.  The FTC also alleged that defendants had violated the Consumer Review Fairness Act by using non-disparagement clauses to restrict customers from leaving accurate reviews of its services.
  • FBA Machine: The FTC brought an action against FBA Machine and other defendants under the FTC Act and Business Opportunity Rule based on allegations that the defendants “use deceptive earnings claims to convince consumers to shell out tens of thousands of dollars each to invest in what Defendants claim is a surefire business opportunity powered by artificial intelligence.”  The FTC also alleged that defendants had violated the Consumer Review Fairness Act by using non-disparagement clauses to restrict customers from leaving accurate reviews of its services.
  • Rytr: The FTC brought an action against Rytr, a service that it alleged enabled subscribers to create “AI-generated reviews featur[ing] information that would deceive potential consumers who were using the reviews to make purchasing decisions,” under Section 5 of the FTC Act.  The FTC alleged that Rytr’s review-generation tool “furnish[ed] others with the means and instrumentalities to” “generate written content for consumer reviews that is false and deceptive,” which it argued was an unfair and deceptive trade practice.  A proposed settlement would restrict Rytr and its partners from advertising or selling any service for generating reviews.

The FTC’s press release announcing the cases stressed that businesses must be transparent about their use of AI, and that “using an AI tool when you’re developing your product is not the same as offering your customers a product with AI inside.”  The FTC also stated that businesses making AI-related claims about the profitability of a business opportunity must “[h]ave concrete data demonstrating what you’re promising is typical for your customers.”

Summarizing its ongoing investigative work to “combat AI-related issues in the marketplace,” the FTC explained that “[w]e’re checking to see whether products or services actually use AI as advertised, if so, whether they work as marketers say they will. We’re examining whether AI and other automated tools are being used for fraud, deception, unfair manipulation, or other harmful purposes. On the back end, we’re looking at whether automated tools have biased or discriminatory impacts.” 

Photo of Yaron Dori Yaron Dori

Yaron Dori is co-chair of the Communications & Media Practice Group. He practices primarily in the area of telecommunications, privacy and consumer protection law, with an emphasis on strategic planning, policy development, commercial transactions, investigations and enforcement, and overall regulatory compliance. Mr. Dori…

Yaron Dori is co-chair of the Communications & Media Practice Group. He practices primarily in the area of telecommunications, privacy and consumer protection law, with an emphasis on strategic planning, policy development, commercial transactions, investigations and enforcement, and overall regulatory compliance. Mr. Dori advises clients on, among other things, federal and state wiretap and electronic storage provisions, including the Electronic Communications Privacy Act (ECPA); regulations affecting new technologies such as online behavioral advertising; and the application of federal and state telemarketing, commercial fax, and other consumer protection laws to voice, text and video transmissions sent to wireless devices and alternative distribution platforms. Mr. Dori also has experience advising companies on state medical marketing privacy provisions, and, more broadly, on state attorney general investigations into a range of consumer protection issues.

Read more about Yaron Dori
Show more Show less
Photo of Laura Kim Laura Kim

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Ms. Kim…

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Ms. Kim advises on a wide range of consumer protection issues, including green claims, influencers, native advertising, claim substantiation, Made in USA claims, children’s privacy, subscription auto-renewal marketing, and other digital advertising matters. In addition, Ms. Kim actively practices before the NAD, including recent successful resolution of matters for both challengers and advertisers. She co-chairs Covington’s Advertising and Consumer Protection Practice Group and participates in the firm’s Internet of Things Initiative.

Ms. Kim re-joined Covington after a twelve-year tenure at the FTC, where she served as Assistant Director in two divisions of the Bureau of Consumer Protection, as well as Chief of Staff in the Bureau of Consumer Protection and Attorney Advisor to former Chairman William E. Kovacic. She worked on key FTC Rules and Guides such as the Green Guides, Jewelry Guides, and the Telemarketing Sales Rule. She supervised these and other rule making proceedings and oversaw dozens of the Commission’s investigations and enforcement actions involving compliance with these rules. Ms. Kim also supervised compliance monitoring for companies under federal court or Commission order.

Ms. Kim also served as Deputy Chief Enforcement Officer at the U.S. Department of Education, where she helped establish a new Enforcement Office within Federal Student Aid. In this role, she managed investigations of higher education institutions and oversaw issuance of fines and adverse actions for institutions in violation of federal student aid regulations. Ms. Kim also supervised the borrower defense to repayment division and the Clery campus safety and security division.

Read more about Laura Kim
Show more Show less
John Bowers

John Bowers is an associate in the firm’s Washington, DC office. He is a member of the Data Privacy and Cybersecurity Practice Group and the Technology and Communications Regulation Practice Group.

John advises clients on a wide range of privacy and communications issues…

John Bowers is an associate in the firm’s Washington, DC office. He is a member of the Data Privacy and Cybersecurity Practice Group and the Technology and Communications Regulation Practice Group.

John advises clients on a wide range of privacy and communications issues, including compliance with telecommunications regulations and U.S. state and federal privacy laws.

Read more about John Bowers
Show more Show less