The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have issued warnings about the potential unfair competition risks associated with generative artificial intelligence (AI). As generative AI becomes more prevalent in the modern economy, the agencies are expressing concerns about its ability to facilitate unfair methods of competition. FTC Chair Lina Khan stressed that AI could be used for fraudulent activities, while also ensuring that large companies do not exploit AI to stifle competition.
To address this issue, the FTC has been actively discussing generative AI in recent blogs and signaling its intention to use all available tools to address any unfair competition methods that may arise from the technology. Jonathan Kanter, the head of the DOJ’s Antitrust Division, has commented that the current model of AI relies heavily on scale and could potentially create significant obstacles for new entrants, leading to unfair competition.
The warnings from these agencies are not simply rhetorical. The FTC has reportedly initiated an investigation into OpenAI and ChatGPT, issuing a Civil Investigative Demand to gather extensive information and determine if the company has engaged in unfair or deceptive practices. At the same time, the DOJ has launched Project Gretzky to enhance its understanding of AI by hiring data scientists and experts in the field.
The concerns surrounding generative AI’s impact on competition are potentially limitless, given the vast opportunities and ideas this technology generates. Businesses should be mindful of the focus competition enforcers place on the potential anticompetitive implications of generative AI. As a former FTC official once pointed out, if an action is unacceptable for a human named Bob, it is likely unacceptable for an algorithm as well.
The FTC and DOJ have identified several competition and consumer protection issues linked to generative AI. In terms of competition, there is growing apprehension about the possibility of algorithmic collusion, where bots may coordinate pricing without human intervention. Although per se or criminal antitrust culpability under the Sherman Act in such cases seems improbable without human involvement, algorithmic collusion remains a subject of discussion among antitrust experts. It is crucial for businesses to understand that engaging in price-fixing through algorithms or with a competitor can result in criminal charges, civil liability, and imprisonment.
Generative AI is increasingly coming under scrutiny during merger reviews as well. The use of algorithms or AI to assess competitor pricing or actions can increase market transparency and the risk of coordinated behavior among competitors. The FTC and DOJ carefully evaluate market transparency when assessing mergers and take action to prevent mergers that significantly amplify competitor coordination. Additionally, they scrutinize the post-merger use of AI by merging parties to ensure it does not facilitate the inappropriate sharing of competitively sensitive information.
In terms of consumer protection, companies must be aware of the heightened scrutiny surrounding generative AI and carefully consider its usage in their business practices. Without adequate compliance programs, training, and safeguards in place, companies leveraging generative AI may face intense and expensive investigations, enforcement actions, or litigation related to antitrust and consumer protection matters.
To summarize, the FTC and DOJ’s warnings regarding generative AI and its potential for unfair competition reflect the agencies’ commitment to addressing any anticompetitive practices stemming from this technology. The investigations into OpenAI and ChatGPT illustrate the seriousness with which the agencies approach these concerns. It is becoming increasingly crucial for businesses to understand and navigate the competition and consumer protection issues associated with generative AI to avoid potential legal consequences.
