The Federal Trade Commission (FTC) has launched a comprehensive investigation into OpenAI, the creator of the widely popular ChatGPT bot.

The probe aims to determine if OpenAI has breached consumer protection laws by putting personal reputations and data at risk.

The FTC recently issued a 20-page demand to OpenAI, requesting records that detail how the company addresses risks associated with its AI models.

This move, first reported by the Washington Post, represents the most significant regulatory challenge to OpenAI’s business in the US, as the company actively engages in shaping the future of AI policy worldwide.

ChatGPT’s rapid growth sparks regulatory attention

ChatGPT, OpenAI’s flagship product, has gained recognition as the fastest-growing consumer app in history.

Its early success triggered a competitive race among Silicon Valley companies to introduce competing chatbots.

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OpenAI CEO Sam Altman has emerged as an influential figure in the AI regulation debate, testifying before Congress, meeting with lawmakers and engaging with President Biden and Vice-President Harris.

While existing consumer protection laws apply to AI, the FTC has cautioned that action against AI companies is forthcoming, despite the lack of clear regulations from the administration and Congress.

Senate Majority Leader Charles E Schumer has predicted that new AI legislation is still months away. The FTC’s demands for records from OpenAI mark the agency’s initial step in enforcing these warnings.

 In case of a violation of consumer protection laws, the FTC has the authority to impose fines or require the implementation of specific measures through a consent decree to safeguard consumer data.

Notably, the FTC has previously imposed substantial fines on tech giants such as Meta, Amazon and Twitter for alleged consumer protection law violations.

FTC investigates reputational harm and data security practices

The FTC’s inquiry into OpenAI focuses on two key areas: potential reputational harm to consumers and data security practices.

OpenAI was specifically asked to provide detailed descriptions of any complaints it received regarding its products making false, misleading, disparaging, or harmful statements about individuals.

The agency aims to determine if OpenAI engaged in unfair or deceptive practices that caused reputational harm.

The FTC is investigating OpenAI’s data security practices following a security incident disclosed by the company in March. OpenAI reported a bug in its systems that resulted in some users accessing payment-related information and other users’ chat history.

The FTC is examining whether these practices violate consumer protection laws, although OpenAI stated that the number of users affected was minimal.

OpenAI vows cooperation, highlights commitment to safety

OpenAI CEO Sam Altman expressed disappointment with the leak of the FTC’s request but assured that the company would cooperate with the agency.

Altman emphasised OpenAI’s commitment to ensuring technology safety and being pro-consumer.

He further affirmed the company’s dedication to protecting user privacy and designing systems to learn about the world rather than private individuals.

The FTC’s investigation into OpenAI coincided with FTC Chair Lina Khan’s hearing before the House Judiciary Committee, where Republican lawmakers criticised her enforcement record and accused her of mismanaging the agency.

During the hearing, questions were raised about the legal authority empowering the FTC to make demands of companies like OpenAI.

The tech industry, represented by Adam Kovacevich, founder and CEO of the Chamber of Progress, questioned the agency’s jurisdiction over defamation or the content generated by ChatGPT.

The FTC’s broader stance on AI regulation

The FTC has been vocal about the need to address AI-related issues and has repeatedly warned that it will take action. The agency has issued blog posts, speeches, op-eds and news conferences to emphasise the importance of preventing harmful practices in the AI domain.

The FTC’s approach to regulating AI extends to combatting AI scams, preventing manipulative use of generative AI and deterring exaggerated claims about AI product capabilities.

The agency also advocates against AI discrimination and seeks to ensure that existing laws apply to AI technologies.

Europe leads AI regulation efforts as US catches up

While the US has lagged behind in AI legislation and privacy regulation, the European Union has taken significant steps to limit US chatbot companies under its General Data Protection Regulation.

Italy temporarily blocked ChatGPT due to data privacy concerns, and Google delayed the launch of its chatbot Bard after privacy assessment requests from the Irish Data Protection Commission.

The European Union is expected to pass its AI legislation later this year. The United States is now making efforts to catch up, with Senate Majority Leader Schumer hosting a briefing on AI’s national security risks and working with bipartisan senators to craft new AI legislation.

Vice-President Harris also convened discussions at the White House to address the safety and security risks of AI.