Federal investigations are never a good thing. So, when news broke that the Federal Trade Commission (FTC) is actively investigating OpenAI, the maker of ChatGPT, my first thought was, This is bad news.
However, after reading up on what has happened -- and what is likely to happen -- I think the conventional wisdom may need to be tweaked.
So, let's try to answer some of the burning questions investors may have.
Image source: Getty Images.
What happened?
First things first: The Washington Post broke the news last Thursday that the FTC sent a letter to OpenAI requesting information about its AI technology, customers, and data.
According to published reports, the letter is part of an active investigation by the FTC into OpenAI regarding potential breaches of consumer privacy safeguards and the publication of false information.
Why would the FTC want information from OpenAI?
No one knows for sure, because the FTC has refused to comment. However, reports indicate that the FTC might have concerns that OpenAI is using personal or copyrighted data to train the large language model behind ChatGPT.
Indeed, some well-known people have already filed lawsuits, alleging that OpenAI "stole" copyrighted content. Comedian Sarah Silverman alleges that ChatGPT knows details of her memoir The Bedwetter so well that it must have used a pirated copy of the text. Other artists, including writers Jodi Picoult and Nora Roberts, have sent a letter to the CEOs of OpenAI, Microsoft (MSFT 0.21%), Google, and Meta Platforms, charging those companies unfairly use their copyrighted content.
What's more, there are also concerns that the accuracy of ChatGPT's answers might ring consumer protection alarm bells. Many users -- and even OpenAI itself -- note that ChatGPT sometimes produces false information. Depending on what ChatGPT gets wrong, the FTC might view ChatGPT's answers as more than inaccurate -- it might allege the content is fraudulent.
What happens now?
The FTC, which is tasked with enforcing consumer protection laws and federal antitrust laws, can request information simply as the result of a complaint. And it's important to remember that not all investigations lead to an enforcement action.
However, it's clear there is growing momentum for Washington to keep a closer eye on AI firms. Even OpenAI CEO Sam Altman -- as recently as May -- called for tighter regulation of AI technology.
For now, it's unclear what the FTC's endgame is. However, it seems reasonable that OpenAI will become more careful about what data it gives ChatGPT access to and also more careful about what questions the program will answer.
What does this mean for OpenAI, Microsoft, and AI stocks?
OpenAI is not a publicly traded company. So, from an investing perspective, this news has no direct impact. However, Microsoft has invested over $13 billion into OpenAI, and, to some extent, OpenAI is seen as an extension of Microsoft. The company has integrated many ChatGPT features into its search engine, Bing, and its iconic Microsoft Office software suite.
So while Microsoft and OpenAI are not joined at the hip, Microsoft investors nevertheless remain very interested in OpenAI. However, given Microsoft's arms-length relationship with OpenAI, I don't foresee a situation where OpenAI's legal problems become Microsoft's legal problems. Besides, Microsoft is a legal juggernaut with over $100 billion on its balance sheet and access to the best lawyers money can buy.
At any rate, an information-seeking letter is far from a reason for panic. Sure, regulators will want to peek under the hood to better understand how AI chatbots work and what data they use. Similarly, lawsuits targeting AI firms are likely, either from creators who believe their copyrights have been infringed or from users who believe that an AI chatbot has misled them.
In a nutshell, it's an age-old story: Innovation creates lots of money -- and lots of litigation. That's just business -- and it's no reason to turn negative on AI stocks.
