FTC broadens tech crackdowns to AI regulation - Yahoo Finance

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While Republican lawmakers grilled Federal Trade Commission (FTC) Chair Lina Khan over crackdowns on U.S. tech companies, the regulatory agency has broadened its investigations to artificial intelligence developers. Former FTC Commissioner Noah Joshua Phillips comments on the FTC's probe on OpenAI over claims of consumer protection law violations from its ChatGPT AI service. FTC regulators look into these accusations against the backdrop of concerns they have regarding anti-trust cases in the tech space.

Video Transcript

JULIE HYMAN: Federal Trade Commission is investigating OpenAI over accusations that its AI chatbot, ChatGPT, puts personal reputations and data at risk. This investigation is the most concrete step to date made by the regulator to crack down on the ever-amorphous AI landscape.

FTC Chair Lina Khan has long pushed for AI regulation by way of consumer protection regulations. Khan's strategy toward tech regulation is aggressive, and her antitrust efforts to break up acquisitions by tech giants, like Meta and Microsoft, as of late have ruffled Republican lawmakers' feathers.

Yesterday, a House committee accused Khan of bullying and politicizing legal action against big firms. Khan argued that more regulation was necessary to combat the growing concentration of power in big tech. We're joined now by former FTC Commissioner Noah Joshua Phillips to talk more about this.

So, Noah, as we look at the current tech landscape, let's zero in on AI in particular here. Do you think-- what do you think the FTC's role should be in looking at AI as it develops?

NOAH JOSUA PHILLIPS: So, Julie, let me just start by thanking you for having me. It's great to be here with you. The FTC has pretty broad authority. They have authority to look at competition issues, antitrust questions, and also consumer protection. And under the consumer protection rubric, they look at a variety of different kinds of things.

We talk about deception. We talk about unfairness. But specifically, they also look at things like privacy and data security and how companies are making claims about what they do and whether those claims are substantiated. And what we're seeing here today is the agency leveraging those tools to look into an area of the economy, AI, where they've been very clear that they're interested in looking.

We've seen a lot of statements, from last year's report to Congress on AI to a recent statement jointly with the DOJ and the EEOC and the CFPB, from the FTC about its interest in looking carefully at AI.

- So what are they looking for?

NOAH JOSUA PHILLIPS: Well, this investigation is looking specifically at a number of different things, but critically, they're interested in how the company is using its models, how it's training those models, how it's assessing risks that are associated with those models, and they're also looking at privacy and data security.

JULIE HYMAN: And what do you think, as you watch this all lay out-- what do you think is the-- I mean, not as somebody who's in there investigating it in detail. But what do you think is the biggest risk going forward that the FTC should be addressing?

NOAH JOSUA PHILLIPS: Well, look, what we have in front of us, because of that leaked report yesterday, is what's called a civil investigative demand. This is the beginning of a process, and it tells us a little bit about what they're interested in. And they, again, seem quite interested in how the company is thinking about the risks associated with the models that it uses, the claims it's making, and privacy and data security.

You know, AI is a kind of software that is now ubiquitous in the economy, and people are using it in a variety of different ways. And that creates a lot of potential. It has the ability to really supercharge a lot of processes that businesses use and allow us all to learn, but it also does present some risks.

And I think the agency has been very vocal that that's what it's interested in policing.

- How have some of the AI deals that have come about, especially in the M&A or even loose acquisition via stake in companies-- how has that differed now versus when you were the FTC commissioner, and how, even in the discussions that continue to move forward right now, do you imagine they evaluate each of these different plays that large, mega-cap tech companies are making?

NOAH JOSUA PHILLIPS: Sure. So we actually haven't seen a lot of activity in the last few months on AI-related M&A. The biggest AI-related enforcement on some level, which was when I was on the commission, was the NVIDIA Arm transaction, and NVIDIA's chips, of course, power a lot of the really powerful processes for processing data applied to games, but also, critically, to AI. And there was concern that the agency expressed in that transaction that marrying NVIDIA with Arm in terms of chip design would be a problem for competition in the market.

But we haven't seen a lot of this play out in the context of competition. The agency has said that it is concerned about some of the potential risks that AI might present on the competition side. You know, could you allow algorithms to help fix prices, that sort of thing.

But what we saw yesterday, and what the agency has been discussing a lot, is actually the consumer protection side of the ledger, and that's less related to M&A than the competition issues.

JULIE HYMAN: That is what they discussed yesterday, but, of course, this FTC, I think we can safely say, is sort of popularly perceived as being-- maybe anti-big-tech is too strong a word, but certainly wary of big tech and willing to be quite active on big tech. You're on the other side of things now, if I'm not mistaken.

You're working with clients who are trying to get mergers through. From their perspective and your perspective, is that an accurate portrayal of the FTC, and do you think it is appropriate for the FTC to be taking such attack?

NOAH JOSUA PHILLIPS: Well, I think what we're seeing is a lot more activity, or at least a lot more talk about activity, from the agency. That's reflected in regulations. It's reflected in a recent proposal to allow-- to ask for a lot more information in the M&A process. It's not really limited to big tech, though.

There's a lot of activity going on from the agency, really across the economy.

- OK, and so where does-- in the instance that a deal comes across the table and doesn't go through in fear that it's going to give one company too much power in the future, how does that-- how does that show up as perhaps an economic consideration in the future?

NOAH JOSUA PHILLIPS: For the government? Look, I think the view that the agency is expressing is that antitrust laws have been underenforced. I have my own questions whether that's accurate, but that's the view they're taking.

And so their view is that doing a lot of this enforcement supports economic growth. I think, as a historical matter, that's not necessarily borne out.

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