The FTC is setting its sights on generative AI


Share post:

Watershed technological transitions can usher in opportunities for new entrants to challenge market leaders. These rare paradigm shifts redefine how companies compete for customers and resources. The emergence of generative artificial intelligence (AI) is a quintessential example of how innovation can either disrupt or entrench dominant incumbents depending on how markets and regulators respond.

Generative AI uses massive models trained on rich and diverse datasets to create new content. This revolutionary tool is reshaping how businesses interact with their customers, competitors, and partners, creating immense opportunity and great risk.

The Federal Trade Commission (FTC) is making a case for aggressive antitrust enforcement. A recent Technology Blog submission from the Bureau of Competition and Office of Technology staff outlines several practices that could trigger government intervention. To understand antitrust risk when competing in markets affecting generative AI, businesses should familiarize themselves with the parameters and limits of several common antitrust theories of harm.

Exclusive dealing

Companies often seek to shore up suppliers or customers through exclusive deals. Exclusive dealing is not necessarily problematic and often stimulates competition. But agreements that enable one firm to control a critical input, distribution channel, or customer segment can raise concerns. In McWane v. FTC, for example, a federal court condemned an exclusive-dealing arrangement that foreclosed rivals from “distribution sufficient to achieve efficient scale, thereby raising costs and slowing or preventing effective entry.”

Generative AI startups should familiarize themselves with the parameters and limits of several common antitrust theories of harm.

In the context of generative AI, the FTC foresees antitrust exposure where “incumbents that offer both compute services and generative AI products” wield such arrangements to discriminate against new entrants. The FTC appears poised to scrutinize exclusive deals involving compute resources, such as graphical processing units, that are key to competing for generative AI markets.

Although each agreement requires an individualized assessment, several general principles are worth knowing. First, exclusive-dealing arrangements should not be implemented as part of a scheme to exclude or deny rivals the ability to compete. Exclusive-dealing contracts that block competitors from scaling are inherently risky.

Second, companies should contemporaneously document any pro-competitive benefits, such as lower costs, higher quality, and better access to products, and should be prepared to explain specifically how the exclusivity results in improved products or services. Finally, be aware that exclusive arrangements with companies whose market share exceeds 30% are riskier.

Source link

Lisa Holden
Lisa Holden
Lisa Holden is a news writer for LinkDaddy News. She writes health, sport, tech, and more. Some of her favorite topics include the latest trends in fitness and wellness, the best ways to use technology to improve your life, and the latest developments in medical research.

Recent posts

Related articles

The current labor market is a gold mine of talent for startups

For any company, great talent is key for hitting goals and building scale successfully, but hiring the...

Everyone loves Anthropic

Hello, and welcome back to Equity, the podcast about the business of startups, where we unpack the numbers...

Elicit is building a tool to automate scientific literature review

For researchers, reading scientific papers can be immensely time-consuming. According to one survey, scientists spend seven hours...

Notetaking app Goodnotes invests $1.9M in digital stationary company WeBudding

Weeks after launching a digital stationary store within the app, notetaking company Goodnotes said today it has...

Amazon to invest up to $4 billion in AI startup Anthropic

Amazon has agreed to invest up to $4 billion in the AI startup Anthropic as the e-commerce...

Correcto grabs $7M to build out its ‘Grammarly for Spanish’

The generative AI boom has put a spring in the step of Correcto, a Madrid-based language writing...

California governor vetoes bill to ban driverless AV trucks

California Gov. Gavin Newsom vetoed a bill Friday that would have required a human safety operator to...

A conversation with Cruise’s Kyle Vogt, Bird scoops up Spin, and self-driving trucks live to see another day in Cali

The Station is a weekly newsletter dedicated to all things transportation. Sign up here — just click The Station —...