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Tag: Federal Trade Commission

  • Microsoft faces off against US government over Activision deal, with top execs set to testify | CNN Business

    Microsoft faces off against US government over Activision deal, with top execs set to testify | CNN Business

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    CNN
     — 

    Microsoft

    (MSFT)     and the video game giant Activision Blizzard

    (ATVI)     will face off Thursday against the US government in a high-stakes battle over one of the largest technology acquisitions in history.

    The showdown in federal court will have the CEOs of both companies taking the stand to defend their $69 billion merger against claims that the combination could violate US antitrust law and harm millions of consumers.

    The outcome of the fight will shape the future of the multibillion-dollar games industry. It will also impact enormously popular gaming franchises such as “Call of Duty” and “World of Warcraft,” which Activision owns and would be transferred to Microsoft under the deal.

    Also testifying will be the top financial executives from both companies; senior leaders from Microsoft’s Xbox division; the CEO of Microsoft Gaming, Phil Spencer; and a vocal critic of the deal, Sony gaming CEO Jim Ryan.

    The days-long affair begins Thursday and is scheduled to run through next week.

    In bringing the case, the Federal Trade Commission is asking a US district court judge for an injunction that would temporarily halt the deal. That would keep the companies from closing their merger, at least until the FTC’s in-house court rules in a separate proceeding on whether the acquisition is anticompetitive.

    But this week’s fight over a preliminary injunction may prove decisive for the deal as a whole. Microsoft has said that a victory for the FTC at this stage “will effectively block the transaction” overall.

    In this hearing, the FTC does not need to prove that the deal is anticompetitive. It just needs to show that the agency would be likely to succeed in doing so if the case moves ahead, and that otherwise its ability to enforce US antitrust law would be harmed.

    The clash comes as Microsoft and Activision face down a contractual July 18 deadline to consummate the deal. Failure to close, or any permanent court order to block the merger, could force Microsoft to pay a $3 billion breakup fee to Activision, according to the deal’s terms.

    The FTC lawsuit has put Microsoft under the harshest antitrust scrutiny in the US in more than two decades. It also could be a crucial test for the FTC at a time when it’s trying to rein in the tech industry broadly, with mixed success.

    In its initial challenge to the merger in its in-house court last year, the FTC alleged the deal would harm competition by turning Microsoft into the world’s third-largest video game publisher — allowing it to raise video game prices with impunity, restrict Activision titles from rival platforms and harm game quality and player experiences on consoles and gaming services.

    Some of those concerns have also been raised internationally. The UK government has challenged the acquisition, and the New Zealand government on Tuesday warned that the deal could be anticompetitive.

    Microsoft has sought to address the concerns by hammering out multi-year licensing agreements with competitors such as Nintendo and Nvidia to ensure that their platforms will continue to receive popular titles if the deal goes through.

    The company has also put forth an 11-point pledge to keep its platforms open, a commitment that applies not only to the Activision Blizzard deal but to virtually all of Microsoft’s gaming business going forward.

    Last month, Microsoft said the European Union would require it to license Activision games “automatically” to competing cloud gaming services as a condition of allowing the merger to proceed in the EU. That commitment, Microsoft said, “will apply globally and will empower millions of consumers worldwide to play these games on any device they choose.”

    Although EU regulators have said the concession addresses their concerns, officials in the US and the UK are continuing with their legal opposition to the deal.

    The standoff particularly focuses attention on FTC Chair Lina Khan, a tech industry critic who has argued for litigating difficult cases and for introducing novel legal theories to help adapt US antitrust law to the digital age.

    Khan won a significant victory last year when the FTC forced Nvidia to abandon its attempted acquisition of the chipmaker Arm. The deal would have combined two companies in adjacent industries in what is known as a vertical merger, a type of deal that is rarely blocked in the United States.

    But Khan also suffered a setback when the FTC unsuccessfully tried to block Facebook-parent Meta from acquiring Within Unlimited, a virtual reality startup. The FTC had argued that the acquisition was an attempt by Meta to quash competition in the nascent VR industry, but earlier this year, a federal judge declined to issue a preliminary injunction of the kind the FTC now seeks against Microsoft. The FTC dropped its case against Meta soon after.

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  • The FTC should investigate OpenAI and block GPT over ‘deceptive’ behavior, AI policy group claims | CNN Business

    The FTC should investigate OpenAI and block GPT over ‘deceptive’ behavior, AI policy group claims | CNN Business

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    Washington
    CNN
     — 

    An AI policy think tank wants the US government to investigate OpenAI and its wildly popular GPT artificial intelligence product, claiming that algorithmic bias, privacy concerns and the technology’s tendency to produce sometimes inaccurate results may violate federal consumer protection law.

    The Federal Trade Commission should prohibit OpenAI from releasing future versions of GPT, the Center for AI and Digital Policy (CAIDP) said Thursday in an agency complaint, and establish new regulations for the rapidly growing AI sector.

    The complaint seeks to bring the full force of the FTC’s broad consumer protection powers to bear against what CAIDP portrayed as a Wild West of runaway experimentation in which consumers pay for the unintended consequences of AI development. And it could prove to be an early test of the US government’s appetite for directly regulating AI, as tech-skeptic officials such as FTC Chair Lina Khan have warned of the dangers of unchecked data use for commercial purposes and of novel ways that tech companies may try to entrench monopolies.

    The FTC declined to comment. OpenAI didn’t immediately respond to a request for comment.

    “We believe that the FTC should look closely at OpenAI and GPT-4,” said Marc Rotenberg, CAIDP’s president and a longtime consumer protection advocate on technology issues.

    The complaint attacks a range of risks associated with generative artificial intelligence, which has captured the world’s attention after OpenAI’s ChatGPT — powered by an earlier version of the GPT product — was first released to the public late last year. Everyday internet users have used ChatGPT to write poetry, create software and get answers to questions, all within seconds and with surprising sophistication. Microsoft and Google have both begun to integrate that same type of AI into their search products, with Microsoft’s Bing running on the GPT technology itself.

    But the race for dominance in a seemingly new field has also produced unsettling or simply flat-out incorrect results, such as confident claims that Feb. 12, 2023 came before Dec. 16, 2022. In industry parlance, these types of mistakes are known as “AI hallucinations” — and they should be considered legally enforceable violations, CAIDP argued in its complaint.

    “Many of the problems associated with GPT-4 are often described as ‘misinformation,’ ‘hallucinations,’ or ‘fabrications.’ But for the purpose of the FTC, these outputs should best be understood as ‘deception,’” the complaint said, referring to the FTC’s broad authority to prosecute unfair or deceptive business acts or practices.

    The complaint acknowledges that OpenAI has been upfront about many of the limitations of its algorithms. For example, the white paper linked to GPT’s latest release, GPT-4, explains that the model may “produce content that is nonsensical or untruthful in relation to certain sources.” OpenAI also makes similar disclosures about the possibility that tools like GPT can lead to broad-based discrimination against minorities or other vulnerable groups.

    But in addition to arguing that those outcomes themselves may be unfair or deceptive, CAIDP also alleges that OpenAI has violated the FTC’s AI guidelines by trying to offload responsibility for those risks onto its clients who use the technology.

    The complaint alleges that OpenAI’s terms require news publishers, banks, hospitals and other institutions that deploy GPT to include a disclaimer about the limitations of artificial intelligence. That does not insulate OpenAI from liability, according to the complaint.

    Citing a March FTC advisory on chatbots, CAIDP wrote: “Recently [the] FTC stated that ‘Merely warning your customers about misuse or telling them to make disclosures is hardly sufficient to deter bad actors. Your deterrence measures should be durable, built-in features and not bug corrections or optional features that third parties can undermine via modification or removal.’”

    Artificial intelligence also stands to have vast implications for consumer privacy and cybersecurity, said CAIDP, issues that sit squarely within the FTC’s jurisdiction but that the agency has not studied in connection with GPT’s inner workings.

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  • FTC chair Lina Khan warns AI could ‘turbocharge’ fraud and scams | CNN Business

    FTC chair Lina Khan warns AI could ‘turbocharge’ fraud and scams | CNN Business

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    Washington
    CNN
     — 

    Artificial intelligence tools such as ChatGPT could lead to a “turbocharging” of consumer harms including fraud and scams, and the US government has substantial authority to crack down on AI-driven consumer harms under existing law, members of the Federal Trade Commission said Tuesday.

    Addressing House lawmakers, FTC chair Lina Khan said the “turbocharging of fraud and scams that could be enabled by these tools are a serious concern.”

    In recent months, a new crop of AI tools have gained attention for their ability to generate convincing emails, stories and essays as well as images, audio and videos. While these tools have potential to change the way people work and create, some have also raised concerns about how they could be use to deceive by impersonating individuals.

    Even as policymakers across the federal government debate how to promote specific AI rules, citing concerns about possible algorithmic discrimination and privacy issues, companies could still face FTC investigations today under a range of statutes that have been on the books for years, Khan and her fellow commissioners said.

    “Throughout the FTC’s history we have had to adapt our enforcement to changing technology,” said FTC Commissioners Rebecca Slaughter. “Our obligation is to do what we’ve always done, which is to apply the tools we have to these changing technologies … [and] not be scared off by this idea that this is a new, revolutionary technology.”

    FTC Commissioner Alvaro Bedoya said companies cannot escape liability simply by claiming that their algorithms are a black box.

    “Our staff has been consistently saying our unfair and deceptive practices authority applies, our civil rights laws, fair credit, Equal Credit Opportunity Act, those apply,” said Bedoya. “There is law, and companies will need to abide by it.”

    The FTC has previously issued extensive public guidance to AI companies, and the agency last month received a request to investigate OpenAI over claims that the company behind ChatGPT has misled consumers about the tool’s capabilities and limitations.

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  • Tax prep companies shared private taxpayer data with Google and Meta for years, congressional probe finds | CNN Business

    Tax prep companies shared private taxpayer data with Google and Meta for years, congressional probe finds | CNN Business

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    CNN
     — 

    Some of America’s largest tax-prep companies have spent years sharing Americans’ sensitive financial data with tech titans including Meta and Google in a potential violation of federal law — data that in some cases was misused for targeted advertising, according to a seven-month congressional investigation.

    The report highlights what legal experts described to CNN as a “five-alarm fire” for taxpayer privacy that could lead to government and private lawsuits, criminal penalties or perhaps even a “mortal blow” for some industry giants involved in the probe including TaxSlayer, H&R Block and TaxAct.

    Using visitor tracking technology embedded on their websites, the three tax-prep companies allegedly sent tens of millions of Americans’ personal information to the tech industry without consent or appropriate disclosures, according to the congressional report reviewed by CNN.

    Beyond ordinary personal data such as people’s names, phone numbers and email addresses, the list of information shared also included taxpayer data — details about people’s filing status, adjusted gross income, the size of their tax refunds and even information about the buttons and text fields they clicked on while filling out their tax forms, which could reveal what tax breaks they may have claimed or which government programs they use, according to the report.

    The report, which drew on congressional interviews and written testimony from Meta, Google and the tax-prep companies, also found that every taxpayer who used TaxAct’s IRS Free File service while the tracking was enabled would have had their information shared with the tech companies. Some of the tax-prep companies still do not know whether the data they shared continues to be held by the tech platforms, the report said.

    “On a scale from one to 10, this is a 15,” said David Vladeck, a law professor at Georgetown University and a former consumer protection chief at the Federal Trade Commission, the country’s top privacy watchdog. “This is as great as any privacy breach that I’ve seen other than exploiting kids. This is a five-alarm fire, if what we know about this so far is true.”

    It is also an example, Vladeck said, of why the United States needs federal legislation guaranteeing every American a basic right to data privacy — an issue that has languished in Congress for years despite electronic data becoming an ever-larger part of the global economy.

    The congressional findings represent the latest claims of wrongdoing to hit the embattled tax-prep industry after a report last year by the investigative journalism outlet The Markup highlighted the tracking practice.

    Wednesday’s bombshell report adds to those earlier revelations by identifying a previously unreported category of data that was allegedly being collected and shared: the webpage titles in online tax software that can reveal what tax forms users have accessed, said an aide to Democratic Sen. Elizabeth Warren, who helped lead the congressional probe. For example, taxpayers who entered information about their college savings contributions or rental income may have done so on webpages bearing titles reflecting that information, which would then have been shared with the tech companies, the aide said.

    During the probe, Meta told investigators it used the taxpayer data it received to target third-party ads to users of its platform and to train its artificial intelligence algorithms, the report said. The Warren aide told CNN it was unclear whether Meta knew it was inappropriately using taxpayer data at the time. A Meta spokesperson said the company instructs its partners not to use its tools to share sensitive information and that Meta’s systems are “designed to filter out potentially sensitive data it is able to detect.”

    The technology behind the data collection, known as a tracking pixel, is commonly used across the entire internet. A small snippet of code that website owners can insert onto their sites, tracking pixels gather information that can help companies, including but not limited to Meta and Google, understand the behavior or interests of website visitors.

    Because of the tracking technology used by TaxAct, TaxSlayer and H&R Block, “every single taxpayer who used their websites to file their taxes could have had at least some of their data shared,” the report said.

    The tax-prep companies at the center of the investigation told lawmakers the collected data had been scrambled to help protect privacy, according to the report. But the report also said some of the tax-prep firms themselves were not fully aware of how much information was being exposed to the tech platforms, and the report cited past FTC research concluding that even “anonymized” data can be easily reverse-engineered to identify a person.

    The pixels’ use in a taxpayer context resulted in the “reckless” sharing of legally protected data that could put taxpayers at risk, according to the report by Warren and her Democratic colleagues Sens. Ron Wyden; Richard Blumenthal; Tammy Duckworth; and Sheldon Whitehouse; Sen. Bernie Sanders, an independent who caucuses with Democrats; and Democratic Rep. Katie Porter.

    The FTC, the Internal Revenue Service, the Justice Department and the Treasury Inspector General for Tax Administration “should fully investigate this matter and prosecute any company or individuals who violated the law,” the lawmakers wrote in a letter dated Tuesday to the agencies and obtained by CNN. The FTC and DOJ declined to comment; the IRS and TIGTA didn’t immediately respond to a request for comment.

    In a statement, H&R Block said it takes client privacy “very seriously, and we have taken steps to prevent the sharing of information via pixels.” Wednesday’s report said H&R Block had testified to using the tracking technology for “at least a couple of years.”

    TaxAct and TaxSlayer didn’t immediately respond to a request for comment. The report said TaxAct had been using Meta’s tools since 2018 and Google’s since about 2014, while TaxSlayer began using Meta’s tools in 2018 and Google’s in 2011. The investigation found that all three tax-prep companies had discontinued their use of Meta’s pixel after The Markup’s report last November.

    Intuit, the maker of TurboTax, received an initial inquiry letter from the lawmakers in December but was not a focus of Wednesday’s report because the company did not use tracking pixels to the same extent, the investigation found.

    Tax preparation firms have faced mounting scrutiny in recent years amid reports that many have turned to data harvesting as a business model and that the largest among them have spent millions lobbying against legislation that could make it easier for Americans to file their tax returns. An IRS report this year found that 72% of Americans would be interested in using a free, electronic tax filing service if it were provided by the agency as an alternative to private online filing services. The IRS plans to launch a pilot version of that service to a limited number of taxpayers in the 2024 tax filing season.

    Google told CNN it prohibits business customers from uploading to its platform sensitive data that could be traced back to a person.

    “We have strict policies and technical features that prohibit Google Analytics customers from collecting data that could be used to identify an individual,” a Google spokesperson said. “Site owners — not Google — are in control of what information they collect and must inform their users of how it will be used. Additionally, Google has strict policies against advertising to people based on sensitive information.”

    Wednesday’s report focuses more heavily on Meta’s use of taxpayer data, the Warren aide told CNN, because Google did not appear to have used the information for its own commercial purposes as overtly as Meta and the investigation was unable to fully determine whether Google may have used the data for other applications.

    The allegations could nevertheless create extensive legal risk for both the tech companies as well as the tax-preparation firms, according to tax and privacy legal experts.

    The tax-prep companies could face billions in fines under US tax law if the federal government decides to sue, said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. In addition, the US government could seek criminal penalties.

    “The scope of ‘taxpayer information’ is broad by design,” Rosenthal said, adding that tax-prep companies can be sued for “knowingly” or “recklessly” leaking that information. “The companies shouldn’t be sharing it in a way that some third party could obtain it.”

    Theoretically, he said, the tax code also affords individual taxpayers the right to file private lawsuits against the tax-prep companies. But most if not all of those firms require customers to submit to mandatory arbitration that could realistically make bringing a private claim more challenging, said the Warren aide.

    Apart from the tax code, both the tech giants as well as the tax-prep firms could also face civil liability from the FTC — which can police data breaches and hold companies accountable for their commitments to user privacy — and potentially from state governments that have their own privacy laws on the books, said Vladeck.

    Depending on the strength of the allegations, the tax-prep companies could quickly be forced into a binding settlement, said a former FTC official who requested anonymity in order to speak more freely.

    “If the facts are really strong, these companies would probably rather settle than go to court. This is very embarrassing,” the former official said. “It could be a mortal blow to the tax prep companies.”

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