What Recent FTC Actions Mean for Businesses Using AI

Recent FTC actions and guidance have significant implications for organizations
Var ShankarVar Shankar
Var Shankar
27 Jun
What Recent FTC Actions Mean for Businesses Using AI

American regulation of AI is a patchwork. To start with, existing laws at all levels apply to AI systems. As for general rules for AI, NIST’s authoritative AI Risk Management Framework is voluntary, the Biden administration’s Trustworthy AI Executive Order and follow-on OMB guidance apply only to the federal government, and Colorado is currently the only state to broadly regulate AI systems. Other jurisdictions– like New York City and Illinois – have regulated specific AI use cases, like automated hiring.

Currently, U.S. Federal Trade Commission (“FTC”) guidance and actions provide the clearest picture of how the federal government expects businesses to deploy AI systems. Recent FTC guidance has attempted to address current events with speed. In February, the FTC finalized a rule banning the use of AI deepfakes to impersonate organizations or government agencies. The same month, it warned AI companies against surreptitiously changing their terms of service with retroactive effect. These activities are in addition to its scrutiny of investments and acquisitions by large technology companies from an antitrust lens. In May, FTC Chair Lina Khan wrote an opinion piece in the New York Times, describing her proposed approach to AI regulation.

Why was December's Rite Aid case so important?

In December 2023, the FTC announced a settlement with the Rite Aid pharmacy chain. Rite Aid had “used facial recognition technology in hundreds of its retail pharmacy locations to identify patrons that it had previously deemed likely to engage in shoplifting or other criminal behavior,” according to an FTC complaint. In the settlement, Rite Aid agreed to refrain from deploying facial recognition systems for five years at its retail stores or online and to delete photos and videos of customers improperly used in facial recognition systems, including “data, models and algorithms” derived from such use.

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What are the Implications for Organizations Using AI?

The FTC’s settlement with Rite Aid was notable for two reasons. First, it demonstrated the FTC’s interpretation of AI discrimination. Second, it marked the continued use of model disgorgement as a remedy.

AI Discrimination

On AI discrimination, the FTC noted that Rite Aid’s deployment of facial recognition systems did not account for high false-positive rates across demographic groups. It also suggested that the pattern of stores chosen for deployment of facial recognition would have disproportionate discriminatory impact on minority groups.

Model Disgorgement

The FTC also required model disgorgement, a relatively new remedy that it pioneered in 2019, which requires an organization to delete data, models and algorithms derived from improperly used AI systems. Since 2019, the FTC has previously required model disgorgement in many episodes, including those related to Cambridge Analytica, Everalbum, WW (formerly Weight Watchers) and Ring. The FTC will likely require model disgorgement in future AI enforcement actions.


Some lessons that organizations should take away from the Rite Aid episode include: 

·     Conduct AI risk assessments

·     Put in place comprehensive training programs for employees overseeing high-risk AI systems

·     Consider the context of AI deployment, including potential discriminatory impacts

·     Scrutinize datasets for accuracy, bias and fitness for purpose

·     Be transparent with people about how their data will be used

·     Be thoughtful about how, and to what extent, to describe AI systems to the public and to regulators

·     Evaluate the privacy and responsible AI practices of vendors

Enzai is here to help

Enzai’s product can help your company deploy AI in accordance with best practices and emerging regulations, standards and frameworks, such as EU AI Act, the Colorado AI Act, the NIST AI RMF andISO/IEC 42001. To learn more, get in touch here.

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