FTC Dismissal of Settlement with AI Company Signals Shift in Enforcement Focus

By Odia Kagan on January 5, 2026

The Federal Trade Commission issued an order to reopen and set aside a 2024 final consent order involving Rytr LLC, citing a failure to satisfy the legal requirements of the FTC Act and an undue burden on artificial intelligence (AI) innovation in violation of the Trump Administration’s Artificial Intelligence Executive Order and America’s AI Action Plan in a way that is contrary to the public interest.

The FTC also sent a letter to companies emphasizing compliance with the 2024 Consumer Review Rule, prohibiting fake reviews.

This signals a focus, by the FTC, on the more traditional definitions of deception and unfairness in connection with AI and a shift in focus from potentially infringing technology (platform that can be used for fake reviews) to infringing conduct (publication of fake reviews).

The decision echoes Commissioner Ferguson’s dissenting opinion in the Rytr consent order where he said that Section 5 of the FTC Act does not categorically prohibit a product or service merely because someone might use it to deceive someone else. Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection stated: “Condemning a technology or service simply because it potentially could be used in a problematic manner is inconsistent with the law and ordered liberty”.

The final consent order, among other conditions, banned Rytr from providing any AI-enabled service generating consumer or customer reviews or testimonials.

The FTC held that it cannot conceive of any need to continue an order that was not based on any cognizable violation of the law and therefore does not protect consumers.

The facts alleged in the complaint fail to support FTC Act Violations

The FTC held that the specific facts set forth in the Complaint do not support a finding that Rytr violated Section 5 of the FTC Act. The Complaint alleged that Rytr’s writing service provided the means and instrumentalities to deceive consumers by providing a service that generates written content for consumer reviews. The Complaint also alleged Rytr engaged in an unfair practice by offering a review writing service that could generate numerous reviews without regard for accuracy.

Means and Instrumentalities

“Section 5 does not categorically prohibit a product or service merely because someone might use it to deceive someone else. Interpreting Section 5 to prohibit products and services with conceivable illegal uses would prohibit an infinite variety of innocent and productive conduct. Congress cannot have intended to capture such conduct in the phrase “deceptive acts and practices.” (Rytr, p. 5)

Per the FTC order, this test is not met because:

Rytr did not provide deceptive marketing material only. The facts as proven only demonstrate that its customers might have used its tool to do so and no evidence was provided that that such false reviews were in fact created and used.

Rytr did not provide others with a product or service that is inherently deceptive. In this case, the Rytr platform has pro-consumer and non-deceptive uses – including creating an editable first draft of a review.

It was not shown that Rytr knew, or had reason to know, that the person to whom the product or service was supplied will use it to violate Section 5. In this case, it was shown that hundreds of reviews were generated but not that it had actual or constructive knowledge that these reviews were used to violate Section 5 or even that the reviews were ever in fact published.

Unfair:

Under the FTC Act, conduct is unfair if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition”.

Per the FTC order, this test is not met because:

The Complaint fails to plead sufficiently that Rytr’s platform causes or is likely to cause any injury to consumers, much less substantial injury. Nor does the Complaint plead facts sufficient to support a “likelihood” of substantial injury.

The Complaint also fails to plead facts demonstrating that any harm is not outweighed by countervailing benefits to consumers or to competition. No empirical or even qualitative evidence, is presented to support the assertion that the service “has no or de minimis legitimate use”.

The Order unduly burdens innovation in the nascent AI industry

In his Rytr dissent, Ferguson expressed his belief that interpreting Section 5 to prohibit products and services with conceivable illegal uses would prohibit an infinite variety of innocent and productive conduct and that this was not the intent of Congress.

Per Ferguson: [t]reating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud is inconsistent with our precedents and common sense. And it threatens to turn honest innovators into lawbreakers and risks strangling a potentially revolutionary technology in its cradle. (Rytr, p.1)

In the opinion, Ferguson stated:

The theory on which the complaint rests would permit the Commission to proscribe Microsoft Word merely because someone may use it to create a fake review, or Adobe Photoshop merely because someone used it to create a false celebrity endorsement. The danger this theory poses to free speech is obvious. Yet because the technology in question is new and unfamiliar, I fear we are giving short shrift to common sense and to fundamental constitutional values (Rytr p. 10)

The decision may signal the FTC’s approach to AI regulation more generally.

“When people use generative AI technology to lie, cheat, and steal, the law should punish them no differently than if they use quill and parchment. But Congress has not given us the power to regulate AI. It has tasked us with enforcing the prohibition against unfair or deceptive acts and practices. If our enforcement incidentally captures some AI-generated conduct, so be it. But we should not bend the law to get at AI. And we certainly should not chill innovation by threatening to hold AI companies liable for whatever illegal use some clever fraudster might find for their technology (Rytr, p. 9-10)

The FTC reiterated its position in previous cases that where actors use AI to violate the law or deceive consumers about the capabilities of their generative AI, they should be held accountable, as the FTC has done and will continue to do so.

In that, we should expected continued enforcement of deception or unfairness by AI companies under the traditional definitions of those concepts. The FTC also specifically mentioned misrepresentation regarding capabilities of the AI, in connection with which there have been many enforcement actions.

Putting the Onus on the Fake Review Publishers

Shortly after setting aside the Rytr decision, which took issue with technology tat is capable of generating fake reviews, the FTC turns the heat on publishers of fake reviews.

Per the FTC Blog post on this: “When companies try to game the review system — by using fake reviews or providing money or incentives for only positive reviews — they distort the marketplace and harm consumers relying on reviews to make purchasing decisions. They also hurt honest competitors who work hard to comply with the law”.

The FTC sent a letter to a number of companies emphasizing that companies using fake reviews or providing incentives for 5-star reviews misrepresent consumer experiences and opinions — and may be subject to FTC enforcement actions and civil penalties of up to $53,088 per violation.

The letter highlights the Consumer Review Rule, published in 2024 which prohibits:

Fake or False Consumer Reviews, Consumer Testimonials, and Celebrity Testimonials

Buying Positive or Negative Reviews

Reviews and Consumer Testimonials by Company insiders without disclosing their status as insiders

Company-Controlled Review Websites that are misrepresented as independent review websites

Using legal threats, physical threats, intimidation, or certain false public accusations to prevent or remove a negative consumer review

Misrepresenting that the reviews on a review portion of its website represent all or most of the reviews submitted when certain reviews have been excluded based upon their ratings or negative sentiment