Emerging Federal AI Strategy: FTC Sets Aside Rytr Consent Order
On December 22, the Federal Trade Commission (FTC) reopened and set aside its 2024 consent order against Rytr, a generative AI company. This decision indicates a potential shift in the FTC’s approach to AI enforcement and marks the first action taken under the White House AI Action Plan directive established last July to review and potentially modify orders that may hinder AI innovation.
It is worth noting that it is uncommon for the FTC to reopen and set aside a consent order without a petition from the respondent.
Impact of BEAD Funding and State AI Laws
On February 11, the National Telecommunications and Information Administration (NTIA) conducted a virtual listening session regarding the use of the Broadband Equity Access and Deployment (BEAD) program’s “nondeployment” funds. An executive order issued by President Trump seeks to withhold these funds from states with what are deemed “onerous AI laws,” creating uncertainty surrounding the estimated $21 billion in nondeployment funds. The order instructs the NTIA to condition these funds on states either refraining from enacting conflicting AI laws or agreeing not to enforce such laws during the grant period.
Both the BEAD nondeployment policy and the FTC’s decision to set aside the Rytr order reflect a broader effort directed by President Trump to centralize AI governance at the federal level, guided by the White House AI Action Plan and the executive order focused on federal preemption issued in December.
FTC’s Shift in AI Policy
The FTC’s abandonment of the Biden-era order signals a shift towards innovation-focused AI governance, moving away from the more expansive enforcement strategies of the previous administration. This transition was highlighted during a recent conference where FCC Commissioner Olivia Trusty cautioned that fragmented state AI regulations could pose a direct threat to U.S. competitiveness and network-infrastructure deployment.
Background on Rytr’s Case
The FTC had previously launched Operation AI Comply, a law enforcement initiative targeting companies that utilize AI in deceptive or unfair ways, in September 2024. Rytr was one of five companies subjected to FTC enforcement actions, accused of using AI to promote false claims or engage in allegedly deceptive business practices.
The case against Rytr was notable as it was decided on a narrow, party-line 3-2 vote, with dissenting commissioners arguing that there was insufficient concrete evidence to justify the complaint. The commission’s initial allegations did not assert that Rytr’s AI-generated review service users had actually posted deceptive reviews.
Reasons for Reopening the Consent Order
In a recent vote, the current Republican majority at the FTC, led by Chair Andrew Ferguson, voted 2-0 to reopen and set aside the Rytr consent order. They cited its misalignment with the White House AI Action Plan and concluded that there was no violation of Section 5 of the FTC Act, which prohibits unfair or deceptive acts in commerce.
The commission emphasized that the potential misuse of an AI tool is insufficient to establish a Section 5 violation. They noted that the original complaint did not allege that Rytr itself generated deceptive content, highlighting the need for a more narrowly defined liability theory in the context of AI tools.
In conclusion, the FTC’s actions represent a significant shift toward fostering innovation in AI while balancing regulatory oversight, indicating a new era of federal AI policy that is likely to shape the landscape of AI governance in the United States.
