Vice President, C_TEC
April 22, 2022
As the Senate prepares to vote on the nomination of Alvaro Beyoda to fill the lone vacancy on the Federal Trade Commission (FTC), several developments in the consumer protection space are giving the business community pause. As the Commission continues to undo bipartisan due process protections in rulemakings, the stakes are even higher for the business community if the FTC proceeds with an overly aggressive consumer protection agenda.
What Khan said about data protection
Last week, FTC Chair Lina Khan addressed the “state of privacy” during the opening keynote of the International Association of Privacy Professionals’ (IAPP) 2022 Global Privacy Summit. During her speech, Chair Khan outlined an agenda to continue enforcement against firms capable of “widespread harm” and “dominant middlemen,” including corporate executives. She noted that the Commission will continue to bulk up its technologist staff including artificial intelligence scientists.
When it came to the issue of data protection, she articulated that the Commission is considering a “data surveillance” and security rulemaking with a focus on substantive limits on data use as opposed to procedural protections like notice and choice. Ms. Khan made two points during the address that alarmed the business community: 1) the Commission would enforce data protection under both its antitrust and consumer protection authority; and 2) the use of algorithmic destruction as a remedy for consumer protection matters.
Why Khan’s comments are alarming
1. Short circuit rulemaking protections: The call to enforce data protection as a matter of competition harkens back to President Biden’s Executive Order on Competition, calling on the Commission to undertake a rulemaking on “unfair data collection…that may damage competition.” Just this year, the Commission began to solicit feedback on whether to make a rule banning tailored online advertising a competition matter. This approach unfortunately flies in the face of agency authority and is an attempt to short circuit the procedural safeguards put in place by Congress for consumer protection rulemakings.
2. Put AI innovation at risk: Also while at IAPP, Khan touted the FTC’s use of algorithmic destruction as a remedy in consumer protection cases at a time when other commissioners are calling for an AI rulemaking. Recently, the Commission entered into a settlement agreement with Weight Watchers after alleging the company violated the Children’s Online Privacy Protection Act. The agreement stipulated that Weight Watchers would destroy any algorithm that was “developed in whole or in part using Personal Information Collected from Children…”. Although the parties agreed to these terms, if the FTC promulgates a highly confusing or complex rule regarding data privacy or AI, companies acting in good faith but found in technical violation could potentially lose years of valuable research and development for algorithms. Businesses that violate FTC rules should be held accountable with due process but not be excessively punished.
Other concerns regarding consumer protection
The Commission has also signaled it plans to micromanage how companies communicate pricing and earnings and allow them to rely less on providing disclaimers to consumers. In March, the Commission published in the Federal Register an Advanced Notice of Proposed Rulemaking dealing with companies’ earnings claims about participation in industries like direct selling and the gig economy. This rule could impact whether companies can promote flexible earnings opportunities and whether companies can use disclaimers to clarify claims. This comes at the same time that the FTC is prosecuting a tax preparation website for deceptive trade practices, even though the company has offered to clarify disclaimers about the cost of its product.
As the Commission consolidates power and mulls further consumer protection enforcement and rules, companies should be on notice that their AI innovation and their ability to attract new earners could be at risk.