Federal Enforcement Efforts in the Regulation of False AI Claims Begins With a Loud Bang
I want to bring attention to significant developments in the AI and legal landscape. The Federal Trade Commission recently launched “Operation AI Comply,” a sweeping initiative targeting companies making false or misleading claims about their AI capabilities.
The FTC has taken action against multiple companies, including:
DoNotPay, a “robot lawyer” startup that promised that its service would allow consumers to “sue for assault without a lawyer” and “generate perfectly valid legal documents in no time,” and that the company would “replace the $200-billion-dollar legal industry with artificial intelligence.” DoNotPay has agreed to a proposed Commission order settling the charges against it. The settlement would require it to pay $193,000 and provide a notice to consumers who subscribed to the service between 2021 and 2023 warning them about the limitations of law-related features on the service. The proposed order also will prohibit the company from making claims about its ability to substitute for any professional service without evidence to back it up.
Ascend Ecom, an alleged AI-powered fraud scheme helping consumers earn thousands of dollars in passive monthly income by opening online storefronts. As a result of the FTC’s complaint, a federal court issued an order temporarily halting the scheme. The FTC’s case against the scheme is ongoing and will go before a federal court.
Ecommerce Empire Builders, a company falsely claiming to help consumers build an “AI-powered Ecommerce Empire” by participating in training programs or buying a “done for you” online storefront. A federal court issued an order temporarily halting the scheme. This case will also be decided by a federal court.
Rytr, a service that produced AI-generated fake testimonials and reviews. The FTC proposed an order settling the complaint. The order is designed to prevent Rytr from engaging in similar illegal conduct in the future. It would bar the company from advertising, promoting, marketing, or selling any service dedicated to or promoted as generating consumer reviews or testimonials.
FBA Machine, an AI Ecommerce get-rich-quick scheme. The FTC was able to halt this company’s operations as well, and this case will also go before a federal judge.
This week, the online collective of lawyers and legal experts that we lovingly refer to as #lawtwitter began a public campaign to expose yet another “AI Law Firm” called CimphonyAI that claims to be “a first of its kind AI law firm for startups”, and the results are nothing less than astonishing and quite an entertaining read. Even in the company's terms of use, it acknowledged that it is not, in fact, a law firm. The irony lies in the obvious assumption that this "AI law firm" did not consult with an attorney before publishing its outlandish claims and allegedly engaging in the unauthorized practice of law in multiple jurisdictions.
The company has, practically in real time, edited its online marketing materials in response to #lawtwitters comments. You can read all about it in an article linked below that is already out of date, as the effort to confront the company continues. It is a very entertaining read. I encourage you to check out the threads in their entirety on X, as this article does not even cover half of the information: https://thedeepdive.ca/donotpay-part-2-an-ai-law-firm-is-trying-to-revolutionize-legal-services-for-startups/
Shoutout to Kathryn Tewson for leading the charge in ousting DoNotPay and making the effort to expose CimphonyAI.
Notably, in statements on behalf of the FTC, the agency’s Chair, Lina M. Khan, emphasized the following: “Using AI tools to trick, mislead, or defraud people is illegal…there is no AI exemption to the laws on the books.”
The crackdown aims to protect consumers and ensure fair competition in the AI marketplace. Businesses are now on notice that they must have substantial evidence to support claims about AI capabilities. Consumers would be wise to approach grandiose AI promises with caution. In my due diligence, I have seen companies that publicly purport to have “end-to-end automation” and “AI” when, in reality, there are offshore human resources providing the work or the technology claims are unsupported by data.
This enforcement effort by the FTC signals a new era of regulatory scrutiny in the AI space and is a precursor to a coming licensing regime regulated at the federal level. The takeaway here is that all our businesses, regardless of industry, should establish quality standards and controls for vetting technology companies and develop and incorporate AI governance into our compliance efforts.