Skip to content FTC Action Reinforces Emergent Need for AI-Related Businesses to Seek Legal Counsel

Publication

Search Publications




January 2024

FTC Action Reinforces Emergent Need for AI-Related Businesses to Seek Legal Counsel

With orders issued January 24, 2024, the Federal Trade Commission ("FTC") launched a major investigation into leading tech companies and their investments in artificial intelligence ("AI"). Specifically, the FTC ordered Alphabet (Google’s parent company), Amazon, Anthropic, Microsoft, and Open AI to produce detailed reports and documents within 45 days, covering various aspects of their investments and partnerships in the AI ecosystem. The FTC’s action stems from three multi-billion dollar investments between generative AI developers and cloud service providers.

Referred to as “MANG”, industry titans such as Microsoft, Amazon, Nvidia, and Alphabet have poured an impressive $25 billion into data and AI in 2023 alone. Instead of their usual strategy of outright acquisitions, which could more readily invite antitrust concern, they’ve taken a different approach. They invest in AI companies, get a minority stake in them, and then tie these companies into exclusive partnership deals. For example, when Google invested in Anthropic, a company specializing in AI, it not only acquired a 10 percent stake, but also made Anthropic commit to using Google’s cloud services. This model is lucrative, as a large portion of the revenue from AI services ends up going to these big tech firms:

In fact, for every $1 of inferencing that customers pay their LLM provider (e.g. Anthropic hosted on AWS Bedrock), we estimate that >50% of that revenue goes to the hyperscaler to cover infrastructure costs + gross profit share.” – Apoorv Agrawal

The orders and the FTC’s accompanying press release make clear what the FTC is investigating – potential monopolistic practices.  As shown here, the FTC’s orders are broad and include demands for “all agreements and related documents” about the investments and partnerships, documents “sufficient to show” the relationship and interactions between the transaction partners, as well as “all analyses, reports, studies, and surveys” prepared for any senior management that evaluate or analyze the potential market and competitive impact of the transactions. Between this investigation and several recent FTC announcements addressing privacybias, and advertising concerns, there can be no doubt that the FTC is taking an aggressive approach to protect against AI’s potential for consumer harm.

Whether a business is deploying AI against consumer data, marketing an AI-based tool, or looking to invest in an AI company, it is imperative that the business have knowledgeable, experienced counsel by their side. Gordon Rees Scully Mansukhani’s Artificial Intelligence practice group provides this, helping innovative clients to achieve their strategic objectives while navigating the complexities of this dynamic field.

Please connect with the authors or any member of the firm's AI practice group if you would like more information.

Advertising & E-Commerce

Graham Reynolds
Robin G. Sagstetter
Damon W.D. Wright


Advertising & E-Commerce
Artificial Intelligence

Loading...