OpenAI faces regulatory threat as FTC investigates potential violations of consumer protection laws

The Federal Trade Commission (FTC) has initiated an investigation into OpenAI, the creator of the popular ChatGPT bot, to determine whether the company has violated consumer protection laws and put personal reputations and data at risk.

As per a Washington Post report, the agency has sent a 20-page demand for records to OpenAI, requesting information on how the company addresses risks associated with its AI models. This regulatory action represents the most significant threat thus far to OpenAI's business in the United States.

FTC demands from OpenAI

In its Civil Investigative Demand, the FTC has requested detailed descriptions of any complaints received by OpenAI regarding its products making false, misleading, disparaging, or harmful statements about individuals.

The agency is also investigating whether the company engaged in unfair or deceptive practices that caused reputational harm to consumers. For example, radio host Mark Walters has filed a defamation lawsuit against OpenAI, claiming that the ChatGPT language model falsely accused him of defrauding and embezzling funds from the Second Amendment Foundation.

Additionally, the FTC is seeking records related to a security incident disclosed by OpenAI in March, which involved a bug in the company's systems leading to the exposure of payment-related information and chat history data. The AI company has also been asked to disclose the impact of the security incident and the measures taken to mitigate it. The FTC aims to determine whether OpenAI's data security practices comply with consumer protection laws.

The investigation also focuses on potential consumer protection abuses, requesting details on how well consumers understand the accuracy and reliability of outputs generated by OpenAI's AI tools.

Further, the FTC has also called for comprehensive information regarding OpenAI's products and their advertising methods. The commission has also requested details regarding OpenAI's policies and procedures for releasing new products, specifically asking for a list of instances where the company withheld a large language model due to safety concerns.

Additionally, OpenAI has been asked to provide a detailed description of the data used to train its products, as well as information on refining the models to address their tendency to generate fictitious responses.

OpenAI, ChatGPT and FTC

OpenAI's ChatGPT has been hailed as the fastest-growing consumer app in history by analysts. Its success has triggered a competition among Silicon Valley companies to develop competing chatbots.

While the administration and Congress work to establish new regulations for AI, the FTC has repeatedly emphasised that existing consumer protection laws apply to AI.

The FTC's demands to OpenAI mark the agency's first steps toward enforcing these warnings. The agency has been vocal about taking action on AI, highlighting potential threats and issuing warnings through speeches, blog posts, op-eds, and news conferences. The agency has cautioned against AI scams, the use of generative AI for manipulative purposes, and the exaggeration of AI product capabilities.

(With inputs from agencies)

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