Background: Artificial intelligence—or “AI”—is everywhere these days. It powers our smartphones, cars, homes, and entertainment. It helps us diagnose diseases, teach children, and create art. It promises to revolutionize every aspect of our lives, for better or worse. 

But … How should public policy respond to this powerful and rapidly evolving force? How should we ensure that AI serves our interests and values, rather than undermining or subverting them?

Some observers and policymakers fear that AI could pose existential threats to humanity, such as unleashing rogue superintelligences, triggering mass job losses, or sparking global wars. They argue that governments should take a prescriptive approach to AI regulation to preempt speculated threats.

Some argue that we need to impose strict and specific rules on AI development and deployment, before it is too late. In a recent U.S. Senate Judiciary Committee hearing, OpenAI CEO Sam Altman suggested that the United States needs a central regulator for AI. 

However … This approach is likely to be both misguided and counterproductive. Overregulation could stifle innovation and competition, depriving us of the benefits and opportunities that AI offers. It could put some countries at a disadvantage relative to those that pursue AI openly and aggressively. It could also stifle learning from AI and developing better AI.

ADOPT AN ADAPTIVE APPROACH

A more sensible and effective approach to oversight is to pursue an adaptive framework that relies on existing laws and institutions, rather than creating new regulations, agencies, and enforcement mechanisms.

There are already laws, policies, agencies, and courts in place to address actual harms and risks, rather than hypothetical or speculative ones. This is what we’ve done with earlier transformative technologies like biotech, nanotech, and the internet. Each has been regulated by applying existing laws and principles, such as antitrust, torts, contracts, and consumer protection. 

In addition, an adaptive approach would foster international dialogue and cooperation, which have been essential for establishing norms and standards for emerging technologies.

AN ADAPTIVE APPROACH DOES NOT MEAN COMPLACENCY

Pursuing an adaptive approach does not mean that we should be complacent or naive about AI. Where the technology is misused or causes harm, there should be actionable legal consequences. For example, if a real-estate developer intentionally used AI tools to screen out individuals from purchasing homes on the basis of protected characteristics, that should be actionable. If a criminal found a novel way to use ChatGPT to commit fraud, that should be actionable. If generative AI is used to create “deep fakes” that amounts to libel, that should be actionable. But in each of these cases, it is not the AI itself that is the relevant unit of legal analysis, but the actions of criminals and the harms they cause.

Ultimately, it would be fruitless to try to build a regulatory framework that would make it impossible for bad actors to misuse AI. Bad actors will always find ways to misuse tools, and heavy-handed regulatory requirements would chill the development of the very AI tools that could combat misuse.

DON’T NEGLECT THE BENEFITS

If history is any guide, it is likely that AI tools will allow firms and individuals to do more with less, expanding their productivity and improving their incomes.

By freeing capital from easily automated tasks, existing firms and new entrepreneurs could better focus on their core business missions. For example, investments in marketing or HR could be redeployed to R&D. At this point, we have little idea how AI will be used by people and firms. And more importantly, neither do politicians, policymakers, or regulators.

OVER-REGULATION WOULD INCREASE MARKET POWER

Overly burdensome AI regulation would likely hinder the entry and growth of new AI firms. For example, as an established player in the AI market, it should be no surprise that OpenAI’s CEO would favor a strong central regulator that can impose entry barriers on newcomers.  It is well-known in both law and economics that incumbent firms can profit from raising their rivals’ regulatory costs.

This dynamic can create strong strategic incentives for industry incumbents to promote regulation and can lead to a cozy relationship between agencies and incumbent firms in a process known as “regulatory capture.”

CONCLUSION

The key challenge confronting policymakers lies in navigating the dichotomy of mitigating actual risks posed by AI, while simultaneously fostering the substantial benefits it offers. 

To be sure, AI will bring about disruption and may provide a conduit for bad actors, just as technologies like the printing press and the internet have done in the past. This does not, however, merit taking an overly cautious stance that would suppress many of the potential benefits of AI.

Policymakers must eschew dystopian science-fiction narratives and instead base policy on realistic scenarios. Moreover, they should recognize the laws, policies, and agencies that already have enormous authority and power to find and punish those who misuse AI.

For more on this issue, see the International Center for Law & Economics’ (ICLE) response to the National Telecommunications and Information Administration’s AI Accountability Policy, as well as ICLE’s response to the similar inquiry from the White House Office of Science and Technology Policy.

The Telecom Hootenanny is back from a little summer break. As they say on AM radio: “If you miss a little, you miss a lot.” So rather than trying to catch up, let’s focus on some of the latest news from the telecom dancefloor. For this edition of the Hootenanny: we’ve got a big-time challenge to the Federal Communications Commission (FCC) heating up in the 5th U.S. Circuit Court of Appeals; an upgrade to the rapidly running-out-of-money Affordable Connectivity Program (ACP); and some big contrasts in how states plan to use their Broadband Equity, Access, and Deployment (BEAD) Program funds. Read the full piece here.

QUESTION PRESENTED

Whether the court should overrule Chevron v. Natural Resources Defense Council, or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

INTEREST OF AMICI CURIAE

The Manhattan Institute for Policy Research (“MI”) is a nonpartisan public policy research foundation whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility. To that end, MI has historically worked sponsored scholarship and filed briefs supporting economic freedom against government overreach.

Richard Epstein is the Laurence A. Tisch Professor of Law at New York University. He also serves as the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution and the James Parker Hall Distinguished Service Professor of Law emeritus and a senior lecturer at the University of Chicago.

Todd Zywicki is George Mason University Foundation Professor of Law at George Mason University Antonin Scalia School of Law and a research fellow of the GMU Law and Economics Center.

Justin “Gus” Hurwitz is a senior fellow and academic director of the Center for Technology, Innovation, and Competition at the University of Pennsylvania Carey Law School.

Geoffrey Manne is the president and founder of the International Center for Law and Economics and a distinguished fellow at Northwestern University’s Center on Law, Business, and Economics.

This case interests amici because it involves an agency regulation that was not explicitly authorized by statute. Indeed, it gives the Court a chance to revisit Chevron—either overruling it or clarifying that statutory silence does not require judicial deference.

SUMMARY OF ARGUMENT

Family-run fishing businesses face a fraught and competitive environment even before the intrusion of burdensome regulations. Here, the National Marine Fisheries Service (“NMFS”) promulgated a rule for certain classes of herring boats that sweeps in most such businesses, as portrayed in the Oscar-winning movie CODA. If a vessel needs a monitor and has not already been assigned one under a federally funded program, it must pay for one itself. The cost for most herring boats exceeds $710 per sea day.

Petitioners, four family-owned and -operated fishing companies, contend that the industry-funding requirement which is not explicitly authorized by statute—will have a devastating economic impact on the herring fleet and will disproportionately impact small businesses, destroying historic communities.

The district court ruled for the government, finding that various provisions of the Magnuson-Stevens Fishery Conservation and Management Act (“MSA”) together conferred broad authority on the NMFS to implement regulations to carry out fishery management plan’s measures. Without any analysis, the court also found that, even if the statute were ambiguous, the government’s reading would be reasonable under Chevron Step Two and thus worthy of judicial deference. A divided panel of the D.C. Circuit affirmed, reasoning that the MSA’s authorization for the placement of monitors, through silence on funding, left room for agency discretion. This Court granted certiorari to determine whether the Court should overrule Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

The Court should now take this opportunity to overhaul the Chevron-deference regime, because this experiment in rebalancing the relationship between administration and judicial review has failed. It has led to agency overreach, haphazard practical results, and the diminution of Congress. Although intended to empower Congress by limiting the role of courts, Chevron has instead empowered agencies to aggrandize their own powers to the greatest extent plausible under their operative statutes, and often beyond. Congress has proved unequal to the task of responding to this pervasive agency overreach and now has less of a role in policymaking than in the pre-Chevron era. Courts, in turn, have become sloppy and lazy in interpreting statutes. It’s a vicious cycle of legislative buckpassing and judicial deference to executive overreach.

Chevron deference rests on the presumption that Congress won’t over-delegate and that agencies will be loyal agents. But the past 40 years have shown that Congress loves passing the buck and agencies are actually principals who pursue their own interests. The time has more than come for the Court to revisit Chevron, whether it chooses to overrule it explicitly or keep it nominally under a newly restricted standard. Cf. Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (preserving Auer deference but reworking it so completely that both Chief Justice Roberts, who joined Justice Kagan’s majority opinion, and Justice Kavanaugh, who joined Justice Gorsuch’s effective dissent, noted that there wasn’t much difference between the two).

 

We write to express our concerns about two aspects of the proposed rule that would, as drafted, disrupt the careful balance Congress struck in crafting the Federal Trade Commission Act. If the FTC is to have the authority to impose civil penalties for ordinary misrepresentations, even for certain classes of transactions, only Congress can confer that power—and only by amending the Act.

Automatic renewals are nothing new, even if some consumers may find them surprising. How companies implement such “negative option” offerings may sometimes be unfair or deceptive. That’s why Congress enacted the Restore Online Shoppers’ Confidence Act.[1] A new rulemaking to consolidate existing rules on negative option marketing may well be appropriate. Unfortunately, “[t]he scope of the proposed Rule is not confined to negative option marketing,” as former Commissioner Christine Wilson warned in her dissent from the issuance of the proposed amendment: “It also covers any misrepresentation made about the underlying good or service sold with a negative option feature.”[2]

The proposed rule thus presents a great many companies with a difficult choice: abandon negative option marketing altogether, or risk incurring civil penalties not only for the negative option marketing itself, but also for “any material fact related to the underlying good or service.”[3] As former Commissioner Wilson noted, “even if the negative option terms are clearly described, informed consent is obtained, and cancellation is simple,”[4] the FTC could—for the first time—obtain civil penalties for claims involving product efficacy, national origin, how information about the consumer or the transaction is shared, used or secured, and much more.

Negative option marketing is not inherently fraudulent; it is “used lawfully and non- deceptively in a broad array of common transactions—newspaper subscriptions, video streaming services, delivery services, etc.”[5] Automatic renewal provides convenience to the consumer and some degree of predictability to businesses: they can assume that subscriptions will not lapse inadvertently, that consumers will not complain about disrupted service, etc. In a world without negative option marketing, businesses would have to bombard consumers with reminders to renew their subscriptions, much as European websites must bombard consumers with notices about cookies. Given these transaction costs, negative option marketing will likely remain widespread among legitimate businesses.

The proposed rule would fundamentally transform the Commission’s remedial powers; in effect, it would rewrite the FTC Act with respect to any product subject to negative option marketing. Congress has never empowered the FTC to impose civil penalties for ordinary misrepresentations—and for good reason. The original FTC Act gave the FTC exceptionally broad power over “unfair or deceptive acts and practices” (UDAP)[6] but authorized only injunctive relief. Only later did Congress authorize restitution and civil penalties, and only in narrow circumstances. Congress carefully “counterbalance[d]” the exceptionally “amorphous” standard of Section 5 with a “detailed framework” that ensures a defendant always has “fair notice” of what specific conduct counts as “unfair or deceptive”—before being ordered to pay money, whether in the form of restitution[7] or civil penalties.[8] Section 5(m)(1)(b) authorizes the FTC to ask federal courts to impose civil penalties for violations of FTC rules committed “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.”[9]

The FTC would invoke this provision in seeking civil penalties for misrepresentations not only about negative option marketing, but about “any material fact related to the underlying good or service.”[10] Under the proposed rule, it would be as if the FTC had taken a red pen to the Act and inserted an arrow pointing up from Section 5(m)(1)(b) (authorizing penalties for rules) to Section 5(b)’s “amorphous” standard of deception. If the FTC can do this with respect to products subject to negative option marketing, it can do so more broadly. Increasingly, it will seek civil penalties in first-time deception cases by codifying more and more kinds of misrepresentations in trade regulation rules.

True, the FTC would still have to show that the company had “actual knowledge or knowledge fairly implied” that its representation about a product was deceptive.[11] But this is not the only part of the statutory framework that matters. What “counterbalances the FTCA’s amorphous ‘unfair or deceptive practices’ standard” is, as the Seventh Circuit made explicit, the combination of Section 5(m)(1)(b)’s knowledge requirement with Section 18(a)’s “requir[ement that] the Commission . . . . give defendants fair notice . . . through . . . rules that ‘define with specificity’ prohibited acts.”[12] Section 5 is the anthesis of “specific,”[13] so its prohibition on deception cannot form the basis for a rule whose violation can lead to civil penalties. The knowledge requirement alone cannot ensure that defendants have fair notice before being subjected to civil penalties, as the Constitution requires.[14]

We urge two changes. First, the proposed rule must focus only on negative option marketing. Specifically, the proposed misrepresentation rule (§ 425.3) should be revised as follows:

In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this Rule and an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act (“FTC Act”) for any Negative Option Seller to misrepresent, expressly or by implication, any material fact related to the transaction, such as the Negative Option Feature, or any material fact related to the underlying good or service.

Yet a rule thus focused on negative option marketing would still be far too general to provide the specificity required by Section 18(a). The Commission has never issued a trade regulation rule as general and far-reaching as this one. Trade regulation rules promulgated under Magnuson-Moss illustrate the kind of specificity the FTC has previously provided. For example, the Business Opportunity Rule prohibits no fewer than 21 different kinds of misrepresentation regarding business opportunities. [15] This specificity is typical of trade regulation rules.[16] The Commission has usually been similarly specific even when it issues “guides” even though these, being only non-binding guidance and not triggering civil penalties, are not subject to Section 18(a)’s specificity requirement (violations of which cannot be the basis for obtaining civil penalties under Section 5(m)(1)(B)).[17]

Only in such guides has the Commission included language that is un-specific in a way that might resemble the proposed rule. Even here, we could find only two examples. Neither could have been issued as trade protection rules because both clearly lacked the specificity required by Section 18(a).[18]

We urge the Commission to follow the example of its past Magnuson-Moss rulemakings and focus on specific, concrete examples of acts or practices related to negative option marketing that may be deceptive. The proposed rule provides plausible examples of what these might be in its discussion of prevalence, including “lack of informed consumer consent, lack of clear and conspicuous disclosures, failure to honor cancellation requests and/or refusal to provide refunds to consumers who unknowingly enrolled in plans”; “failure to provide consumers with a simple cancellation method”; “deny[ing] consumers refunds and forc[ing] them to pay to return the unordered goods”; “require[ing] consumers to cancel using a different method than the one used to sign up for the program”; and “forc[ing] consumers to listen to multiple upsells before allowing cancellation.”[19] These examples are specific and concrete in much the same way as the practices prohibited by past trade regulation rules.

To craft a rule that will be both effective in protecting consumers and capable of withstanding judicial challenge, the Commission must hold a hearing to explore how the rule should, as Section 18(a) requires, “define with specificity acts or practices which are unfair or deceptive acts or practices.”[20] Congress provided for hearings precisely because the Magnuson-Moss Act requires specificity, and only a full discussion of concrete examples can lead to specific rules. As drafted, courts will invalidate the FTC’s negative option rule, which will benefit no one.

[1] 15 U.S.C. §§ 8401-8405.

[2] Dissenting Statement of Commissioner Christine S. Wilson on Notice of Proposed Rulemaking, Negative Option Rule at 2 (Mar. 23, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-wilson-dissent-negative-option-rule.pdf.

[3] Negative Option Rule Proposed Rule, 88 Fed. Reg. 24716, 24734 (proposed Apr. 24, 2023) (to be codified at 16 C.F.R. 425), https://www.govinfo.gov/content/pkg/FR-2023-04-24/pdf/2023-07035.pdf.

[4] Wilson, supra note 2.

[5] Wilson, supra note 2, at 3.

[6] As the FTC recognized in its 1980 Unfairness Policy Statement, Section 5 “was deliberately framed in general terms since Congress recognized the impossibility of drafting a complete list of unfair trade practices that would not quickly become outdated or leave loopholes for easy evasion.” In re International Harvester Co., 104 F.T.C. 949, 1073 (1984).

[7] FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764, 774 (7th Cir. 2019).

[8] 15 U.S.C. § 45(l) (violation of a final order); 15 U.S.C. § 45(m)(1)(B). “Where the Commission has determined in a litigated administrative adjudicatory proceeding that a practice is unfair or deceptive and has issued a final cease and desist order, the Commission may obtain civil penalties from non-respondents who thereafter violate the standards articulated by the Commission. To accomplish this, the Commission must show that the violator had ‘actual knowledge that such act or practice is unfair or deceptive and is unlawful’ under Section 5(a)(1) of the FTC Act.” A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority, FTC (May 2021), https://www.ftc.gov/about-ftc/mission/enforcement-authority.

[9] 15 U.S.C. § 45(m)(1)(A).

[10] Negative Option Rule Proposed Rule, 88 Fed. Reg. 24716, 24734 (proposed Apr. 24, 2023) (to be codified at 16 C.F.R. 425), https://www.govinfo.gov/content/pkg/FR-2023-04-24/pdf/2023-07035.pdf.

[11] 15 U.S.C. § 45(m)(1)(A).

[12] 937 F.3d at 774, quoting 15 U.S.C. § 57a(a)(1)(B) (“the Commission may prescribe. . . rules which define with specificity acts or practices which are unfair or deceptive acts or practices. . .”).

[13] The FTC commonly bars companies from engaging in further unfair or deceptive acts and practices in orders issued after a violation of the Act, then imposes civil penalties when companies engage in such acts or practices. But unlike Section 18(B), Section 5(b) does not require “specificity” in such issuing orders, nor does Section 5(l) require specificity or even knowledge before the FTC may obtain civil penalties in enforcing such orders.

[14] Although “elementary notions of fairness” always “dictate a person receive fair notice” of what conduct to avoid, the “strict[er] constitutional safeguards” around “judgments without notice” are “implicated by civil penalties.” BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 & n.22 (1996); see also FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253 (2012) (“A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required… This requirement of clarity in regulation is essential to the protections provided by the Due Process Clause of the Fifth Amendment.”).

[15] 16 C.F.R. § 437.6.

[16] E.g., Unfair Credit Practices, 16 C.F.R. § 444.2 (1984); Misrepresentations, 16 C.F.R. § 453.3 (1994); General Duties of a Used Car Dealer, 16 C.F.R. § 455.1 (2016); Separation of Examination and Dispensing, 16 C.F.R. §456.2 (1992); Labeling and Advertising of Home Insulation, 16 C.F.R. § 460 (1979).

[17] The Guides for the Jewelry, Precious Metals, and Pewter Industries prohibit “misrepresent[ing] that an industry product contains silver, or to misrepresent an industry product as having a silver content, plating, electroplating, or coating,” and provides five specific examples, including “Use of the words ‘solid silver,’ ‘Sterling Silver,’ ‘Sterling,’ or the abbreviation ‘Ster.’ to mark, de-scribe, or otherwise represent all or part of an industry product unless it is at least 925/1,000ths pure silver.” 16 C.F.R. § 23.5. The FTC’s Guides for Private Vocational and Distance Education Schools declare it deceptive for an “Industry Member to misrepresent, directly or indirectly, expressly or by implication, in advertising, promotional materials, recruitment sessions, or in any other manner, the size, location, services, facilities, curriculum, books and materials, or equipment of its school or the number or educational qualifications of its faculty and other personnel,” and provides no fewer than eleven concrete examples, including misrepresenting “the qualifications, credentials, experience, or educational background of its instructors, sales representatives, or other employees.” 16 C.F.R. §§ 254.4(a), (a)(1).

[18] Under the Guides for Private Vocational and Distance Education Schools, “[i]t is deceptive for an Industry Member to misrepresent, directly or indirectly, expressly or by implication, the nature of the school, its Accreditation, programs of instruction, methods of teaching, or any other material fact through the use of any trade or business name, label, insignia, or designation, or in any other manner.” 16 C.F.R. § 254.2(a). Clearly, the highlighted language would not provide the specificity required by Section 18(a). At least that guide was narrow in its application, covering only members of a small industry, whereas the rule proposed here would cover countless companies across the economy. The Commission’s Endorsement Guide says “[a]dvertisers are subject to liability for false or unsubstantiated statements made through endorsements…”16 C.F.R. §255.1(d). As a guide rather than a trade regulation rule, this provision does not declare all such statements unlawful; rather, it says that they may be, depending on the specific circumstances of the case.

[19] Negative Option Rule Proposed Rule, 88 Fed. Reg. 24716, 24720-21 (proposed Apr. 24, 2023) (to be codified at 16 C.F.R. 425), https://www.govinfo.gov/content/pkg/FR-2023-04-24/pdf/2023-07035.pdf.

[20] 15 U.S.C. § 57a(a)(1)(B).

 

The 16 young Montanans who have sued in state court seeking a judicial declaration that the state of Montana‘s policies violate their right to a clean and healthful environment under Article IX, Section 1, of the Montana Constitution are surely both sincere and well intentioned. Climate change is a serious public concern that should focus the attention of Montana law makers. The plaintiff s allege that the state‘s policies violate their constitutional rights by both contributing to and failing to do enough to combat climate change. They may well be right about the effects of state policies, but it is not within the competence or authority of the judiciary to second guess or override those policies. The trial judge has recognized as much by indicating that the only remedy she will consider is a declaratory judgment. But even a declaration that state policies violate the constitutional right to a clean and healthful environment would require the judge to conclude that there are better policies the executive and legislature should enact.

Read the full piece here.

Jennifer Abruzzo, general counsel of the National Labor Relations Board (NLRB), recently issued a memo claiming that certain noncompete clauses in labor contracts are illegal, on grounds that they violate employees’ right to organize and negotiate better working conditions under Section 7 of the National Labor Relations Act (NLRA).

Read the full piece here.

While persistent gridlock continues to bedevil Congress, federal agencies have been busy pushing the boundaries of their authority. The Federal Trade Commission (FTC) is trying to ban noncompete agreements. The Securities and Exchange Commission (SEC) is puzzling over cryptocurrencies. The Environmental Protection Agency (EPA) is pushing regulations to address climate change.

At the same time, the U.S. Supreme Court is telling agencies that they cannot act without clear congressional authority. What’s an agency to do? The answer is disarmingly simple: nothing, until Congress clearly directs them otherwise.

Read the full piece here.

The Federal Trade Commission (FTC) last week held its first informal hearing in 20 years on Section 18 rulemaking. The hearing itself had a technical delay, which to us participants felt like another 20 years, but was a mere two hours or so.

At issue is a proposed rule intended to target impersonation fraud. Impersonation fraudsters hold themselves out as government officials or company representatives in order to defraud unsuspecting consumers.

Read the full piece here.

Since taking the reins of the Federal Trade Commission (FTC) almost two years ago, Chair Lina Khan has sketched an agenda that appears inevitably set for rebuke before the U.S. Supreme Court. And that eventual day of reckoning has drawn closer with the high court’s opinion in Axon Enterprise v. FTC earlier this month, which will allow litigants to bring constitutional challenges to the agency’s authority years earlier than would previously have been allowed.

Read the full piece here.