The FTC's Crackdown on "AI Washing"

AI: Everywhere, and Nowhere

You can’t scroll through LinkedIn or turn on the news without hearing about artificial intelligence. It's everywhere: rewriting resumes, designing logos, and generating content. But lately, “AI” has shown up in places that make you pause. Can a toothbrush really be AI-Powered?

The Federal Trade Commission isn’t so sure. The FTC’s recent initiative, Operation AI Comply, is a concerted effort to draw a line between actual innovation and creative “AI washing.” Adopted from the practice of “greenwashing”—which refers to erroneous claims of environmentally friendly business practices—”AI washing” is the deceptive tactic of exaggerating the capabilities of artificial intelligence in a product or service for pecuniary gain. Because when every company claims to be powered by AI, it gets harder to tell where the real intelligence lies: in the code or in the pitch. 

Behind Operation AI Comply: The FTC’s Line

The timing of the crackdown isn’t random. Over the past few years, terms like “AI-powered” and “machine learning” have turned into some of the most overused phrases in tech. They are on everything now, from apps to home gadgets, making it harder for consumers to tell what actually uses artificial intelligence and what just borrows the name. To address the confusion, the FTC launched Operation AI Comply last fall, an initiative designed to keep companies honest about what their tech can really do. 

Grounded in 15 U.S.C. § 45, which directs the FTC to prevent “unfair or deceptive practices” in advertising, Operation AI Comply was announced with enforcement actions against several companies accused of overstating their AI capabilities. The FTC alleged these claims were unsubstantiated, and in some cases, completely false. Whether it was grandiose ideas of a robot lawyer, or overzealous claims of AI-powered online stores, the FTC made clear that it was targeting companies who could not back up its assertions with concrete support. 

The AI Air Complaint

Most recently, for example, the FTC has targeted Air AI Technologies. In a complaint filed in August, the FTC claimed Air AI misrepresented to the public that its tools could help businesses dramatically increase profits through artificial intelligence. The FTC says Air AI marketed its software as a powerful AI system that could help small businesses grow, automate sales, and boost revenue quickly; practically running the operations on autopilot. 

According to the FTC’s complaint, the price Air AI charged for the products and licensing varied widely but generally exceeded $10,000. For example, access to the system’s coaching and AI allegedly cost between $15,000 and $30,000 while licensing opportunities to resell the tech ranged up to $100,000. The complaint notes that customers often took out loans, sometimes brokered by the defendants, to cover the costs. 

Customers reported they were promised to at least double their investment in as little as three to six months. They heard boasts about potentially making a million dollars, and if customers failed to reach their investment goals, a full refund was supposedly guaranteed. Across the board, however, customers reported they were left with losses, and that refunds were rarely honored. The FTC is seeking both a permanent injunction and monetary damages for the allegedly $19 million that was bilked out of customers. 

Regulatory Bite: The Road to Compliance

According to the former FTC Chair Lina M. Khan, Operation AI Comply makes it clear there is “no AI exemption from the laws on the books.” Companies can no longer use terms like “AI-powered” or “machine learning” as mere buzzwords. It's a sign that AI is not operating in a grey zone. If a company wants to use the AI label, it has to be able to show what’s behind it. As the recent action against AI Air indicates, there’s no sign of FTC fatigue in pursuing these actions despite a change in administration. Current FTC Chair Andrew N. Ferguson testified in May that “appropriate enforcement of existing laws to prevent fraudulent conduct in … AI helps empower innovation while ensuring consumers gain the benefit of these new technologies.” 

For consumers, the crackdown reinforces a layer of protection against misleading or nefarious marketing claims. But for venture capitalists and emerging companies, Operation AI Comply is a reminder that truth-in-advertising requires detailed checks and audits of marketing claims. Companies must be able to support their assertions. Specifically, companies must be able to provide answers to the FTC when it calls:  Is the AI real? Is the data sound? Are the claims substantiated? What is clear is that, in a market where “AI-powered” has become the default marketing pitch, the FTC is sinking its teeth into what companies represent to the public, and what they actually put to market.

The End of “Washing”

With AI weaving itself into more of our daily tools, and bipartisan support for enforcing appropriate guardrails, the FTC will continue defining expectations and require companies to be clear about what their products can actually deliver. For businesses, it’s a sign to be more intentional about using the term “AI” and to ensure their marketing aligns with their AI capabilities. For consumers, it’s a gentle reminder to look beyond the buzzword. AI can do a lot, but it doesn’t need to be a vehicle for bad actors to use the promise of AI to scam consumers.

*The views expressed in this article do not represent the views of Santa Clara University.