Understanding Deceptive AI Marketing Practices

Seen a concerning trend lately with AI-generated "UGC" content. Let me be crystal clear: Using AI avatars to create fake reviews or testimonials is illegal. It's a direct FTC violation, no gray area here. Some companies are using AI to create fake "influencers" recording testimonials from their cars or homes. The technology looks incredibly realistic. That's the problem. These AI avatars read scripts praising products and services without disclosing they're artificial. But here's the truth: They're just sophisticated fake reviews. If you're running a business, stay far away from this practice. The FTC will make examples of companies using these deceptive tactics. The consequences? Heavy fines and permanent brand damage. Real user-generated content builds authentic trust. Fake AI reviews destroy it. Keep it real. Build genuine relationships. Your customers can tell the difference. And so can federal regulators. Remember: True marketing innovation doesn't need to cross legal or ethical lines. Watch the full episode with Austin Armstrong in the comments ⬇️

The Federal Trade Commission (FTC) has ramped up its enforcement efforts regarding AI practices, and on Sept 25 shared actions against several companies for misleading claims about their AI tools as part of their new initiative "Operation AI Comply": https://lnkd.in/gTjq-fdU The FTC intends to regulate AI technologies to protect consumers from deceptive practices and has emphasized the importance of transparency, urging companies to accurately represent their AI capabilities. The following companies are under investigation for misleading claims: 1) DoNotPay DoNotPay claimed to provide AI-powered legal services that could effectively replace human lawyers, being capable of negotiating bills and filing lawsuits. It failed to test the accuracy of its legal advice or employ qualified attorneys. The company has settled with the FTC, agreeing to pay $193,000 and provide notice to consumers about the limitations of its services. Future claims about substituting professional services must be backed by evidence. 2) Ascend Ecom This company promoted an AI-based e-commerce scheme, misleading consumers about the potential profitability of AI-enhanced online storefronts. The FTC alleges the scheme defrauded consumers of at least $25 million. A federal court has temporarily halted Ascend Ecom's operations, placing it under the control of a receiver while the case is adjudicated. 3) Ecommerce Empire Builders (EEB) EEB was accused of making false claims about its AI-powered e-commerce solutions, promising customers significant earnings through expensive training programs and pre-built online stores. Customers reported minimal or no income and faced difficulties obtaining refunds; also, the CEO allegedly misused consumer funds. The FTC has secured a temporary halt of the operations, and the case is currently under court supervision. 4) Rytr Rytr marketed an AI writing assistant that generated potentially misleading consumer reviews and testimonials based on limited user input. The service was seen as creating false or deceptive content. The FTC has proposed an order that would prohibit Rytr from advertising or selling any services related to generating consumer reviews. The case is subject to public comment before finalization. 5) FBA Machine FBA Machine promised guaranteed income through AI-powered online storefronts, misleading consumers about their potential earnings. The scheme is alleged to have defrauded consumers of over $15.9 million. The FTC has filed a complaint, and a federal court has temporarily halted the scheme while the case is being adjudicated. * * * With increasing scrutiny and potential legal repercussions from both the FTC and state attorneys general, it is essential for all companies in the AI space to critically assess the claims they make about their products to avoid enforcement actions and ensure compliance with emerging regulations.

As generative AI continues to make breakthroughs, it has also given rise to AI-washing, where companies falsely market their products as AI-powered. This misleading practice distorts the market and drives resources towards technologies that don't live up to the hype, undermining real progress in AI development. With the rise of AI-driven marketing and investment, many businesses are stretching the truth about their AI capabilities to attract attention, ultimately impeding meaningful advancements. Much like other deceptive marketing tactics such as greenwashing, AI-washing exploits the lack of public understanding surrounding the technology. Businesses create a false sense of innovation by rebranding simple automation as AI. While the media often amplifies AI advancements, this hype allows companies to overstate their products' AI capabilities, leading to inflated expectations and skepticism from consumers and investors alike. Governments are now responding, with regulatory bodies such as the SEC, FTC, and the European Union's AI Act taking action against misleading AI claims. As the landscape shifts, businesses must be prepared to back up their AI claims with accurate technology or face legal and reputational risks. Transparency and genuine innovation will be crucial for companies to build trust and succeed long-term.

BREAKING: Earlier today, the Federal Trade Commission announced "Operation AI Comply." The federal agency has taken enforcement actions against several AI companies that "use AI hype or sell AI technology that can be used in deceptive and unfair ways." The cases announced today include: 1. DoNotPay (company claimed to offer 'AI lawyer' services; agreed to settle) 2. Ascend Ecom (claimed that its AI-powered tools helped consumers earn five-figure passive monthly income by setting up online stores; allegedly, the scheme has defrauded consumers of at least $25 million; federal court issued an order temporarily halting all operations) 3. Ecommerce Empire Builders (claimed to help consumers build an “AI-powered Ecommerce Empire” by participating in its training programs that can cost almost $2,000 or by buying a “done for you” online storefront for tens of thousands of dollars; federal court issued an order temporarily halting all operations) 4. Rytr ( AI writing assistant for testimonials and reviews; according to the complaint some subscribers used the service to "produce hundreds, and in some cases tens of thousands, of reviews potentially containing false information" that could deceive potential consumers "who were using the reviews to make purchasing decisions") 5. FBA Machine (claimed that consumers would make guaranteed income through online storefronts that utilized AI-powered software; allegedly, consumers lost more than $15.9 million; the federal court issued an order temporarily halting all operations) Once again, the FTC reminds all "AI-hypers" out there that it does not joke around and that companies practicing AI-washing will face the consequences. Link to full announcement: https://lnkd.in/dDseRe3k

Do not count out the states on #AIenforcement. New advisory out by the Massachusetts Attorney General's Office outlining specific #consumerprotection considerations when marketing, offering, or using #AI. From past experience, when you see a regulator put out a bulletin/advisory/press release focusing on a particular business practice, it's fairly common to see that office pursue enforcement actions afterwards for practices that conflict with the AG's notice outlining their concerns with practices they're seeing in the marketplace. Some highlights include: 1️⃣ Falsely advertising the quality, value, or usability of AI systems    2️⃣ Supplying an AI system that is defective, unusable, or impractical for the purpose advertised 3️⃣ Misrepresenting the reliability, manner of performance, safety, or condition of an AI system 4️⃣ Offering for sale or use an AI system in breach of warranty, in that the system is not fit for the ordinary purposes for which such systems are used, or that is unfit for the specific purpose for which it is sold where the supplier knows of such purpose 5️⃣ Misrepresenting audio or video content of a person for the purpose of deceiving another to engage in a business transaction or supply personal information as if to a trusted business partner as in the case of deepfakes, voice cloning, or chatbots used to engage in fraud  6️⃣ Failing to comply with Massachusetts statutes, rules, regulations or laws, meant for the protection of the public’s health, safety or welfare 7️⃣ Violating anti-discrimination laws (the advisory warns AI developers, suppliers, and users about using technology that relies on discriminatory inputs and/or produces discriminatory results that would violate the state’s civil rights laws) 8️⃣ Failing to safeguard personal data utilized by AI systems, underscoring the obligation to comply with the state’s data breach notification requirements, (statutory and regulatory requirements -- Note MA has very robust data security regulations). PSA: Can't hurt to confer with your counsel on how your practices stack up to these issues. That's less 💲 than responding to a subpoena. Kelley Drye Advertising Law Kelley Drye & Warren LLP https://lnkd.in/egxfdRZr