Witnessing the race to harness the power of Artificial Intelligence ("AI") by markets and businesses, the Federal Trade Commission ("FTC"), recently issued a warning over the emerging technology and its ever-widening use cases. Citing its authority under Section 6(b) of the FTC Act, the Commissioners voted 5-0 on July 19 in favor of issuing investigative orders to eight companies regarding the use of consumer data to set individualized prices for products and services, which the Commission refers to as "surveillance pricing." In announcing the move, FTC Chair Lina Khan claimed that "the FTC's inquiry will shed light on [the] shadowy ecosystem of pricing middlemen."
- The agency's inquiry focuses on four areas:
Types of products and services being offered: The types of products and services that each company has produced, developed, or licensed to a third party, as well as details about the technical implementation and current and intended uses of this technology which may facilitate pricing decisions;
- Data collection and inputs: Information on the data sources used for each product or service, including the data collection methods for each data source, the platforms and methods that were used to collect such data, and whether that data is collected by other parties (such as other companies or other third parties);
- Customer and sales information: Information about whom the products and services were offered to and what those customers planned to do with those products or services; and
- Impacts on consumers and prices: Information on the potential impact of these products and services on consumers including the prices they pay.
Price differentiation and "dynamic pricing" – the practice of offering different pricing to different segments of consumers – has been around for a long time. In a blog post accompanying its announcement of the orders, the FTC explains its new inquiry into this practice as a response, in part, to advancements in machine learning technology that make it easier to collect and process large volumes of personal data in service of algorithmic pricing models. Although the orders are framed as requests for information – with none of the companies accused of any wrongdoing – they serve as another reminder of the Commission's increased focus on artificial intelligence and algorithmic decision making. This focus increasingly occurs at the intersection of the agency's bureaus of competition and consumer protection. That the Commission vote was unanimous suggests a strong interest in studying the issue among the Commissioners.
In addition to concerns around AI, the announcement may suggest a further intent by the Commission to revisit the law of price differentiation. The FTC's characterization of the issues could be read to suggest a view that price differentiation is not presumptively legal if it is predicated on businesses gathering information to determine the prices set in a given transaction.
Section 6(b) findings are typically confidential but may culminate in a report of findings and recommendations for policymakers and other stakeholders. Considering the speed in which AI-enabled business practices continue to emerge and evolve – coupled with the Commission's clear desire to keep up – expect the FTC to prioritize this study going forward.
This article is presented for informational purposes only and is not intended to constitute legal advice.