FTC Gets Fair Use Backwards, Claims It’s Somehow Anti-Competitive?

This is what I get for praising a move by the FTC earlier this week. It repays me by pushing out a batshit crazy statement regarding AI and copyright. As we’ve been discussing over the past week, the Copyright Office’s request for comments regarding AI and copyright has been leading to some odd comments, including Hollywood saying that it doesn’t want to expand copyright laws (?!?) for AI or the newspaper industry’s trade group highlighting how it wants to demand free cash from AI companies. And, of course, there’s the comment that we filed in the proceedings, highlighting how the right to read should never be blocked by copyright.

There were many, many filings on the docket, and so some interesting ones are still popping up — including a very strange one from the FTC. There are some perfectly fine comments in the filing about protecting consumers (the FTC’s general job), though the FTC has some very weird ideas about how to do that in the AI space, especially as its own filing appears to contradict itself.

Specifically, the FTC claims that it has a significant concern about anti-competitive issues regarding AI, mainly because Big Tech controls so many of the inputs.

The rapid development and deployment of AI also poses potential risks to competition. The rising importance of AI to the economy may further lock in the market dominance of large incumbent technology firms. These powerful, vertically integrated incumbents control many of the inputs necessary for the effective development and deployment of AI tools, including cloud-based or local computing power and access to large stores of training data. These dominant technology companies may have the incentive to use their control over these inputs to unlawfully entrench their market positions in AI and related markets, including digital content markets. In addition, AI tools can be used to facilitate collusive behavior that unfairly inflates prices, precisely target price discrimination, or otherwise manipulate outputs. The FTC is empowered under Section 5 of the FTC Act to protect the public against unfair methods of competition, including when powerful firms unfairly use AI technologies in a manner that tends to harm competitive conditions.

So, almost everything about this paragraph struck me as odd. As we had noted last year, the big surprise in the AI explosion in 2022 was that it wasn’t coming from Big Tech. If you went back a couple years, the narrative presented here by the FTC was considered absolute truth: only a very limited number of companies — Google, Meta, Apple, Amazon — had the data necessary to create powerful AI.

And yet, the generative AI revolution… hasn’t really come from them. Those companies are all playing catch up to smaller companies like OpenAI, Anthropic, and MidJourney. While some of these companies are backed by Big Tech, it’s incredibly notable that the leaders in the field are not Big Tech, and Google, Meta, Amazon, and Apple all look like they’re trying to catch up. If this space was somehow only possible for the Big Tech companies, you wouldn’t be seeing lists like 50 Generative AI startups to watch.

Second, if the FTC is claiming that it has Section 5 authority to deal with this, why is it even commenting here about copyright?

But, the really crazy bit is that if the FTC is correct that the “powerful, vertically integrated incumbents control many of the inputs necessary for the effective development and deployment of AI tools” including “access to large stores of training data,” then you would think, that the FTC’s comment regarding the copyrightability of training data would be to side with the argument that AI systems making use of training data on the internet is fair use.

After all, that would make sure that this data is available for everyone to build AI systems. It would be inherently pro-competitive, making sure that the big incumbents can’t cut off access to training data, or that only the big incumbents could afford the necessary licenses to scan the training data.

You would think.

Instead, the FTC takes the positively ridiculous position that… fair use is anti-competitive. Really.

These liability questions implicate consumer protection and competition policy. For instance, under certain circumstances, the use of pirated or misuse of copyrighted materials could be an unfair practice or unfair method of competition under Section 5 of the FTC Act.

Got that? Apparently making training data widely available to competitors is… anti-competitive. Instead we should require licensing… which only the large incumbents could afford. Because… that’s pro-competitive?

Remember, the FTC has no authority over copyright, and it’s complete and total lack of understanding of the subject of copyright and fair use really shows in this filing.

The use of AI technology raises significant competition and consumer protection issues beyond questions about the scope of rights and the extent of liability under the copyright laws. As the courts apply the doctrine of fair use to the training and use of AI, the evolution of the doctrine could influence the competitive dynamics of the markets for AI tools and for products with which the outputs of those tools may compete. Conduct that may violate the copyright laws––such as training an AI tool on protected expression without the creator’s consent or selling output generated from such an AI tool, including by mimicking the creator’s writing style, vocal or instrumental performance, or likeness—may also constitute an unfair method of competition or an unfair or deceptive practice, especially when the copyright violation deceives consumers, exploits a creator’s reputation or diminishes the value of her existing or future works, reveals private information, or otherwise causes substantial injury to consumers. In addition, conduct that may be consistent with the copyright laws nevertheless may violate Section 5.

This is just a bizarre comment, because what it’s describing in the bolded section is… not a copyright issue? At all? It’s mostly handled by state publicity rights laws. So it’s really strange and revealing that the FTC thinks it’s potentially a copyright issue.

Incredibly, the FTC then admits that the large incumbents have the resources to license data… which might be anti-competitive:

Many large technology firms possess vast financial resources that enable them to indemnify the users of their generative AI tools or obtain exclusive licenses to copyrighted (or otherwise proprietary) training data, potentially further entrenching the market power of these dominant firms. These types of issues not only touch on copyright law and policy but also implicate consumer protection and competition concerns across a wide range of industries

Given that, you would think that the FTC would then be supportive of the idea that training on publicly available data online is not a copyright violation. As that would be inherently pro-competitive, enabling many of those generative AI startups, that the FTC doesn’t seem to realize exist, to compete with large incumbents.

On top of that, if the FTC’s concern (as noted in the quote above) is that the largest companies have the resources to indemnify users… then why isn’t it supporting the claim that the use of generative AI isn’t infringing? Again, that would be a true pro-competitive stance, because it would take away that indemnification power from the large incumbents and would help many of these startups better compete.

The whole filing is… just bizarre. It’s basically saying “the big incumbents have too much power… and we support a confused interpretation of copyright law that guarantees they have more anti-competitive power.”

The FTC has no authority over copyright law, and this filing shows why.