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How the FTC Can Make the Internet Safe for Chatbots

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No points for guessing the subject of the first question the Wall Street Journal asked FTC Chair Lina Khan: of course it was about AI.

Between the hype, the lawmaking, the saber-rattling, the trillion-dollar market caps, and the predictions of impending civilizational collapse, the AI discussion has become as inevitable, as pro forma, and as content-free as asking how someone is or wishing them a nice day.

But Chair Khan didn’t treat the question as an excuse to launch into the policymaker’s verbal equivalent of a compulsory gymnastics exhibition.

Instead, she injected something genuinely new and exciting into the discussion, by proposing that the labor and privacy controversies in AI could be tackled using her existing regulatory authority under Section 5 of the Federal Trade Commission Act (FTCA5).

Section 5 gives the FTC a broad mandate to prevent “unfair methods of competition” and “unfair or deceptive acts or practices.” Chair Khan has made extensive use of these powers during her first term as chair, for example, by banning noncompetes and taking action on online privacy.

At EFF, we share many of the widespread concerns over privacy, fairness, and labor rights raised by AI. We think that copyright law is the wrong tool to address those concerns, both because of what copyright law does and doesn’t permit, and because establishing copyright as the framework for AI model-training will not address the real privacy and labor issues posed by generative AI. We think that privacy problems should be addressed with privacy policy and that labor issues should be addressed with labor policy.

That’s what made Chair Khan’s remarks so exciting to us: in proposing that Section 5 could be used to regulate AI training, Chair Khan is opening the door to addressing these issues head on. The FTC Act gives the FTC the power to craft specific, fit-for-purpose rules and guidance that can protect Americans’ consumer, privacy, labor and other rights.

Take the problem of AI “hallucinations,” which is the industry’s term for the seemingly irrepressible propensity of chatbots to answer questions with incorrect answers, delivered with the blithe confidence of a “bullshitter.”

The question of whether chatbots can be taught not to “hallucinate” is far from settled. Some industry leaders think the problem can never be solved, even as startups publish (technically impressive-sounding, but non-peer reviewed) papers claiming to have solved the problem.

Whether the problem can be solved, it’s clear that for the commercial chatbot offerings in the market today, “hallucinations” come with the package. Or, put more simply: today’s chatbots lie, and no one can stop them.

That’s a problem, because companies are already replacing human customer service workers with chatbots that lie to their customers, causing those customers real harm. It’s hard enough to attend your grandmother’s funeral without the added pain of your airline’s chatbot lying to you about the bereavement fare.

Here’s where the FTC’s powers can help the American public:

The FTC should issue guidance declaring that any company that deploys a chatbot that lies to a customer has engaged in an “unfair and deceptive practice” that violates Section 5 of the Federal Trade Commission Act, with all the fines and other penalties that entails.

After all, if a company doesn’t get in trouble when its chatbot lies to a customer, why would they pay extra for a chatbot that has been designed not to lie? And if there’s no reason to pay extra for a chatbot that doesn’t lie, why would anyone invest in solving the “hallucination” problem?

Guidance that promises to punish companies that replace their human workers with lying chatbots will give new companies that invent truthful chatbots an advantage in the marketplace. If you can prove that your chatbot won’t lie to your customers’ users, you can also get an insurance company to write you a policy that will allow you to indemnify your customers against claims arising from your chatbot’s output.

But until someone does figure out how to make a “hallucination”-free chatbot, guidance promising serious consequences for chatbots that deceive users with “hallucinated” lies will push companies to limit the use of chatbots to low-stakes environments, leaving human workers to do their jobs.

The FTC has already started down this path. Earlier this month, FTC Senior Staff Attorney Michael Atleson published an excellent backgrounder laying out some of the agency’s thinking on how companies should present their chatbots to users.

We think that more formal guidance about the consequences for companies that save a buck by putting untrustworthy chatbots on the front line will do a lot to protect the public from irresponsible business decisions – especially if that guidance is backed up with muscular enforcement.


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