Podcast - The Federal Trade Commission's Current Approach to AI Regulation

Anthony DiResta: Welcome to another podcast of Clearly Conspicuous. As we've noted in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory and governmental environment, that's frankly very aggressive and progressive, to make you aware of what's going on with the federal and state consumer protection agencies and give you practical tips for success. As always, it's a privilege to be with you today.

Today we discuss an executive order entitled Removing Barriers to American Leadership in Artificial Intelligence and its impact on the Federal Trade Commission (FTC)'s current approach to AI regulation considering that policy shift.

An executive order was signed many months ago. It declared, "it is the policy of the United States to sustain and enhance America's global AI dominance in order to promote human flourishing, economic competitiveness and national security." It also directed the development of an AI Action Plan within 180 days and required federal agencies to review, suspend, rescind or revise actions taken pursuant to the now-revoked executive order that conflicts with the new policy framework.

The executive order reset federal priorities by emphasizing U.S. leadership and rescinding policies viewed as barriers to innovation and directing the development of America's AI Action Plan. Released in July of 2025, the plan framed AI as a "race for global AI dominance" based on three pillars: 1) accelerating AI innovation, 2) building American AI infrastructure and 3) leading in international AI diplomacy and security. Critically for FTC enforcement, the AI Action Plan specifically directs the commission to review all FTC investigations commenced under the previous administration to ensure that they do not advance theories of liability that unduly burden AI innovation. Furthermore, review of all FTC final orders, consent decrees and injunctions and, where appropriate, seek to modify or set aside any that unduly burden AI innovation. This directive makes clear that AI-related enforcement actions should not impose undue burdens on innovation and existing FTC actions that should be reassessed considering that objective.

On July 1 of this year, the FTC's Proposed Policy Statement Concerning the Suppression of Accuracy in Artificial Intelligence Systems (Proposed Statement) addressed the commission's concern that AI companies may steer AI system outputs in ways that are contrary to reasonable consumer expectations for objectivity and for accuracy. The commission explained that the FTC Act prohibits businesses from engaging in unfair or deceptive conduct and that AI companies may deceive consumers in violation of Section 5 of the FTC Act when they distort AI system outputs to achieve undisclosed objectives. The FTC also explained that AI companies have marketed their systems as tools designed to produce the best output possible within technological and resource constraints. Accordingly, the consumers reasonably expect AI systems to aim for truthful and accurate outputs. The proposed statement therefore frames the FTC's current AI focus as a deception issue, emphasizing whether companies mislead consumers about what their AI systems are designed to do. The FTC draws an important distinction by recognizing that though AI can generate incorrect outputs, those outputs by themselves do not necessarily raise issues under Section 5 of the FTC Act. However, a company may still deceive consumers if it misrepresents the likelihood of inaccurate outputs or if inaccurate outputs result from a design decision to prioritize objectives contrary to users' reasonable expectations. The proposed statement also explains how companies may reduce deception risk through disclosure. An AI company may shape consumer expectations by truthfully and clearly disclosing that its systems are designed to prioritize different objectives from what users request or otherwise expect. However, the FTC warns that such a disclosure must be clear, conspicuous and sufficient to change consumer expectations; it cannot be buried in terms of service or hidden in fine print. Thus, the FTC's guidance centers on transparency. Together, America's AI Action Plan and Proposed Statement show the FTC's current position. The FTC has moved away from broad theories that potentially treat AI tools themselves as problematic and instead focus on whether companies have engaged in deceptive or other conduct that constitutes a cognizable Section 5 violation.

The FTC’s Recent Enforcement Actions Reflect This Shift

Recent enforcement actions reflect the framework described that I just mentioned. The FTC continues to pursue AI-related conduct when companies make concrete misrepresentations through false statements related to the capabilities of their AI products.

So let's look at in re Matter of Rytr LLC, where the FTC addressed whether a generative AI writing service could be restricted on the theory that users might misuse it to generate deceptive consumer reviews. Rytr sells a generative AI writing service that allows subscribers to generate written content, including consumer reviews. The prior FTC alleged that Rytr violated Section 5 of the FTC Act in two ways: 1) by providing users with the "means and instrumentalities" to generate deceptive consumer reviews and 2) by operating an unfair review-writing service that could generate numerous reviews without regard for accuracy. To resolve these allegations, Rytr consented to an order barring it from offering any service dedicated to, advertised as, promoted as or offered as generating consumer reviews or testimonials.

Following the release of America's AI Action Plan, the FTC reopened the matter and set aside the order. The FTC concluded that the complaint did not support a cognizable Section 5 violation, the order therefore did not provide any benefit to the consumers or the public and maintaining an order untethered to an actual legal violation that would unduly burden AI innovation. The FTC explained that the complaint did not allege Rytr itself created deceptive marketing materials, Rytr's product was inherently deceptive or Rytr knew or had reason to know that users would use the tool to violate Section 5. In determining that the previous order unduly burdened innovation in the AI industry, the FTC relied on now-Chairman Andrew Ferguson's dissent explaining that "treating 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." So isn't that an interesting development to show what the FTC is doing?

Other FTC Enforcement Actions

There's an FTC action against an American media conglomerate, as well as MindSift LLC and 1010 Digital Works LLC, where the FTC addressed the companies' marketing of an allegedly AI-powered advertising service known as "Active Listening." The FTC alleged that the companies falsely claimed that the service could "target localized ads based on conversations captured from consumers' smart devices and that consumers had opted into such targeting." According to the FTC, however, the service did not listen to consumers' conversations or use voice data at all; instead, it consisted of reselling email lists obtained from data brokers. The FTC further alleged that the companies falsely represented that consumers had consented to the service. Also, another enforcement action, the FTC gave final approval to an order against Workado LLC after alleging that the company misrepresented the accuracy and effectiveness of its AI Content Detector, a product marketed to consumers seeking to determine whether written content was generated by AI or authored by a human. Workado allegedly represented that the tool had been developed using a broad range of materials, including blog posts and Wikipedia entries, making it more accurate for average users. But, according to the FTC, the model powering the tool was trained or fine-tuned primarily to classify academic content and therefore did not support the broader performance claims made to its consumers.

Finally, the FTC brought an enforcement action against Air AI, five related companies and their owners based on allegations that they misled entrepreneurs and small businesses through deceptive claims about business growth, earnings potential and refund guarantees. According to the FTC, the defendants falsely represented that purchasers were likely to earn substantial income, misrepresented the availability of refund and buyback guarantees and made unsupported claims regarding the performance, profitability and overall characteristics of their AI-related business opportunities. And interestingly, it imposed an $18 million monetary judgment.

Key Takeaways

The FTC's current approach to AI enforcement reflects a narrower, but not a passive, regulatory posture. The executive order and America's AI Action Plan direct the FTC away from theories of liability that unduly burden AI innovation, and the commission's decision to set aside the order in Rytr demonstrates a clear departure from efforts to impose liability based solely on the possibility that an AI tool could be misused. Instead, the current FTC has emphasized that restrictions on AI products should be tied to cognizable Section 5 violations and supported by concrete allegations of unlawful conduct. At the same time, the FTC has not retreated from AI enforcement. The Proposed Statement and recent enforcement actions show continued scrutiny of companies that allegedly misrepresent the capabilities of AI-related products and services. So taken together, the AI Action Plan, the Proposed Statement and FTC's recent enforcement actions suggest that the commission's current AI agenda is best understood as a dual approach: reduced enforcement directed at AI innovation itself, but coupled with continued enforcement against deception, false advertising, unsupported performance claims and other traditional Section 5 violations.

So stay tuned to further programs as we identify and address the key issues and developments and provide you with practical strategies for success. As always, I wish you continued success and a meaningful day. Thank you.