??AI&Tech Legal Digest - October 4, 2024

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EU Takes Lead in Crafting AI Code of Practice

The European Commission has launched a groundbreaking initiative to develop the first-ever Code of Practice for general-purpose AI models, closely aligned with the recently enacted EU AI Act. This ambitious project brings together nearly 1,000 experts from academia, industry, and civil society to establish guidelines for AI systems like ChatGPT and Google Gemini, focusing on transparency, copyright, and risk management.

A team of 13 international experts, including Turing Award winner Yoshua Bengio, is spearheading the effort. Bengio, known for his cautious stance on AI's potential risks, leads the group addressing technical challenges. The working groups aim to finalize the Code by April 2025, creating a practical framework for AI companies operating in the EU market.

The Code of Practice seeks to strike a delicate balance between responsible AI development and innovation. However, the EU faces criticism for potentially stifling progress, as evidenced by the limited deployment of advanced AI features from tech giants like Meta, Apple, and OpenAI due to existing GDPR regulations. The global impact of this initiative remains uncertain, with the US and China adopting more pro-development approaches to AI regulation.

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Epic Games Escalates Legal Battle: Accuses Samsung and Google of Anti-Competitive Practices

Epic Games, the creator of Fortnite, has launched a new legal offensive against tech giants Google and Samsung, alleging a conspiracy to stifle competition in the app distribution market. The lawsuit, filed in a California federal court, targets Samsung's Auto Blocker feature, claiming it's designed to deter users from downloading apps outside Google's Play Store and Samsung's Galaxy Store.

This marks Epic's second antitrust suit against Google, asserting that the collaboration between Google and Samsung violates U.S. antitrust laws by limiting consumer choice and preventing competition that could lead to more affordable apps. Epic CEO Tim Sweeney argues that the companies are engaging in unfair competition by misleading users about the safety of apps from alternative sources.

Samsung introduced Auto Blocker in late 2023 as an opt-in security feature, but Epic claims it became a default setting in July 2024, intentionally made difficult to disable. The game developer suggests this move was a response to Epic's previous legal victory against Google in December 2023, which aimed to make apps more accessible from various sources.

As the legal battle unfolds, Epic plans to voice its concerns to EU regulators, potentially widening the scope of the antitrust scrutiny. This lawsuit represents the latest chapter in Epic's ongoing crusade against app store policies, following its recent return to iOS and Android platforms after a nearly four-year ban.

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Apple Faces Narrowed Privacy Lawsuit Over Data Collection Practices

A federal judge has allowed a privacy lawsuit against Apple to proceed, albeit in a significantly reduced scope. U.S. District Judge Edward Davila's ruling in San Jose, California, dismissed most claims related to Apple's "Allow Apps to Request to Track" setting but permitted some allegations concerning the "Share [Device] Analytics" setting to move forward.

The lawsuit, which seeks unspecified damages, is part of a broader trend of legal actions against tech giants like Apple, Google, and Meta over user data collection practices. It alleges that Apple violated user agreements and various privacy and consumer protection laws by collecting, storing, and using personal data despite users disabling certain privacy settings.

Key points from the ruling:

1. Judge Davila dismissed claims related to the "Allow Apps to Request to Track" setting, stating that Apple clearly communicated this applied to "other companies' apps and websites," making it implausible for users to believe it affected Apple's own data collection.
2. Claims regarding the "Share [Device] Analytics" setting were allowed to proceed. The judge found it plausible that users withdrawing consent by disabling this setting could reasonably expect Apple to stop collecting their data.
3. Apple maintains that data collected through the analytics setting is used to improve its products and services.

This case, "In re Apple Data Privacy Litigation," highlights the ongoing tension between tech companies' data practices and user privacy expectations. As the lawsuit moves forward in its narrowed form, it could have significant implications for how tech companies communicate their data collection policies and respect user privacy choices.

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WordPress War Escalates: WP Engine Sues Automattic in Trademark and Open-Source Dispute

The WordPress ecosystem has been rocked by a major legal battle as WP Engine, a prominent web hosting service, files a lawsuit against Automattic and its CEO, WordPress co-founder Matt Mullenweg. The federal lawsuit, filed on Wednesday, alleges libel, attempted extortion, and abuse of power, marking a significant escalation in the ongoing dispute over WordPress trademark usage and open-source licensing.

The conflict erupted after Mullenweg publicly criticized WP Engine, calling it a "cancer to WordPress" on his blog. This led to a cease-and-desist letter from WP Engine, followed by Automattic's demand for an 8% monthly revenue royalty payment from WP Engine for alleged trademark infringement. WP Engine's lawsuit includes 11 complaints, ranging from libel and slander to violations of the Computer Fraud and Abuse Act.

In a striking accusation, WP Engine claims the WordPress Foundation, led by Mullenweg, failed to disclose its trademark ownership to the IRS. The company argues that this legal action is necessary to protect its stakeholders and the broader WordPress community from what it perceives as unchecked conflicts of interest and governance issues.

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EU Commission Escalates Action Against Three Member States Over Digital Services Act Compliance

The European Commission has intensified its efforts to ensure full implementation of the Digital Services Act (DSA) across the EU, issuing reasoned opinions to Czechia, Cyprus, and Portugal for their continued non-compliance. This action marks a significant escalation in the Commission's enforcement strategy for this landmark digital regulation.

Key developments:

1. The Commission has sent reasoned opinions to Czechia, Cyprus, and Portugal, following initial formal notices in April. This step indicates persistent non-compliance with DSA requirements.
2. These member states have failed to empower their designated Digital Service Coordinators (DSCs) and have not established rules for penalties applicable to DSA breaches.
3. The countries did not meet the February deadline for DSA compliance, which required the appointment of national authorities to oversee implementation and handle user complaints against platforms.
4. The three countries now have a two-month window to take necessary measures for compliance. Failure to do so may result in referral to the Court of Justice of the EU.
5. In a separate but related matter, six other EU countries (Belgium, Spain, Croatia, Luxembourg, Netherlands, and Sweden) received formal notices in July for similar DSA implementation failures.

This development underscores the Commission's commitment to uniform application of the DSA across the EU, aiming to create a consistent regulatory environment for digital services and platform governance. The situation highlights the challenges in synchronizing complex digital regulations across diverse national legal frameworks within the EU.

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Hollywood Writers Strike Negotiator Urges Caution on AI Regulation in EU and US

Ellen Stutzman, executive director of the Writers Guild of America West (WGA), who led negotiations during the recent 148-day Hollywood writers' strike, has warned EU politicians to remain vigilant about the impact of the EU AI Act. Speaking in Brussels, Stutzman emphasized that the effects of this landmark legislation are yet to be fully understood.

Key points from Stutzman's address:

1. EU AI Act Assessment: While acknowledging the Act as a positive starting point for transparency, consent, and remuneration issues, Stutzman cautioned that its broader implications remain unclear.
2. Innovation vs. Regulation Balance: Stutzman criticized the argument that AI deployment should proceed unfettered to avoid stifling innovation, warning that this mindset could lead to insufficient regulatory oversight.
3. Hollywood Strike Insights: The strike, which affected European productions, resulted in a deal recognizing that AI-generated material should not be equated with human-written content.
4. Ongoing Challenges: Stutzman highlighted the need to address how AI systems use copyrighted works, noting that while traditional media companies can be negotiated with, tech companies like OpenAI remain outside their sphere of influence.
5. EU Response: The European Parliament is setting up an AI Act monitoring group, expected to be finalized by mid-October, to track developments and actions in member states and by the Commission.
6. Future Considerations: There are calls within the EU for more specific rules on AI in the workplace, with the European Commission exploring the current AI landscape for potential new policy proposals.

This discussion underscores the complex interplay between AI innovation, creative industries, and regulatory frameworks, highlighting the need for ongoing vigilance and potential policy adjustments as AI technologies continue to evolve and impact various sectors.

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EU Launches Probe into Social Media Algorithms

The European Commission has initiated an investigation into the video recommendation algorithms of TikTok, YouTube, and Snapchat under the Digital Services Act (DSA). The probe aims to understand why vulnerable users are being exposed to potentially harmful content, including election-related misinformation and material promoting self-harm, eating disorders, and substance abuse.

The inquiry focuses on the impact of features like autoplay and infinite scrolling, as well as the safeguards these platforms have in place to prevent the spread of harmful content. Platforms have until November 15 to provide requested information, with non-compliance or false information potentially resulting in fines under EU law.

This investigation is part of a broader regulatory effort by the EU to enforce the DSA, which imposes strict transparency requirements on large online platforms. While Meta's Facebook and Instagram are not included in this specific probe, they are subject to a separate investigation launched in May. The Commission has also initiated investigations into other platforms like X (formerly Twitter) and AliExpress.

Despite potential resistance from tech companies concerned about innovation constraints, the probe has been described as a "wake-up call" by EU officials. As the investigation unfolds, the tech industry remains divided on how to approach these regulatory challenges, with some platforms potentially needing to implement new features to comply with EU regulations.

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SEC Appeals Ruling in Ripple Case, Extending XRP Legal Battle

The Securities and Exchange Commission (SEC) has filed an appeal against a federal court's ruling in its ongoing legal dispute with Ripple over the sale of XRP tokens. This move prolongs the debate on whether Ripple violated securities laws in its cryptocurrency operations.

In August, a federal judge in the Southern District of New York imposed a $125 million fine on Ripple, significantly less than the SEC's requested $2 billion penalty. This lighter sentence was partly due to Judge Analisa Torres' earlier ruling that while Ripple's sales to institutional investors constituted unregistered securities, its programmatic sales to retail exchanges did not.

The SEC's appeal, filed with the Second Circuit Court of Appeals, argues that the district court's decision conflicts with longstanding Supreme Court precedent and securities laws. This legal action has already impacted the cryptocurrency market, with XRP's value dropping up to 11% following the announcement.

Ripple's leadership has responded critically to the SEC's decision. CEO Brad Garlinghouse accused the SEC and its chair, Gary Gensler, of irrational behavior, while Chief Legal Officer Stuart Alderoty described the appeal as "disappointing but not surprising."

Amid this legal turmoil, Bitwise Asset Management Inc. has filed with the SEC for an exchange-traded fund directly investing in XRP, adding another layer of complexity to the ongoing regulatory landscape for cryptocurrencies.

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Amazon's $4 Billion Anthropic Deal Cleared by UK Watchdog

The UK's Competition and Markets Authority (CMA) has given the green light to Amazon's $4 billion investment deal with AI firm Anthropic, determining that the partnership does not warrant a full merger investigation under UK law. This decision marks a significant development in the ongoing scrutiny of Big Tech's investments in artificial intelligence.

Key points of the CMA's decision:

1. The CMA found that Anthropic's revenue and market share in the UK did not meet the threshold for a merger review.
2. As part of the deal, Anthropic agreed to use Amazon Web Services data centers and Amazon's custom-built computer chips for some of its operations.
3. This approval adds to a growing list of AI investments that have been cleared by the CMA, despite initial concerns about Big Tech's influence on the AI industry.

The CMA's decision comes amidst a broader examination of Silicon Valley firms' investments in AI. While this deal has been cleared, the watchdog is still investigating Google's investment in Anthropic and Microsoft's partnership with OpenAI.

Despite clearing several AI investment deals, the CMA remains vigilant. It previously approved Microsoft's investment in Inflection AI, concluding that the mass hiring of ex-employees from the startup did not raise regulatory concerns.

Amazon welcomed the CMA's decision, stating that their investment in Anthropic aims to promote competition and innovation in generative AI. Meanwhile, the US Federal Trade Commission is conducting its own investigation into this deal as part of a wider probe into AI alliances between major tech companies and leading AI developers.

This development highlights the complex regulatory landscape surrounding AI investments and the ongoing efforts to balance innovation with fair competition in the rapidly evolving AI sector.

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California Governor Vetoes Landmark AI Safety Bill, Proposes Alternative Approach

California Governor Gavin Newsom has vetoed a groundbreaking artificial intelligence (AI) safety bill that would have established the first AI regulations in the United States. The bill, SB 1047, aimed to implement safety measures for large AI models and provide whistleblower protections for workers in the AI industry.

Key points of the vetoed bill and its aftermath:

1. The legislation would have required companies to test their AI models and publicly disclose safety protocols to prevent potential misuse, such as manipulating critical infrastructure or aiding in the creation of chemical weapons.
2. The bill faced strong opposition from tech startups, giants, and some Democratic House members, who argued it could stifle innovation and harm California's AI industry.
3. Newsom expressed concerns that the bill could have a "chilling effect" on the industry and announced an alternative plan to partner with industry experts to develop AI guardrails.
4. Bill author Senator Scott Weiner called the veto "a setback" for AI oversight, while supporters like Elon Musk and Anthropic had praised the bill's potential for transparency and accountability.
5. Newsom plans to collaborate with AI experts, including Fei-Fei Li, to develop alternative safeguards for powerful AI models.
6. The veto comes as the U.S. lags behind Europe in AI regulation. The bill was seen as a potential first step towards establishing national AI safety standards.
7. Despite the veto, the bill has sparked interest in similar measures in other states, suggesting that the push for AI regulation is likely to continue.

This decision highlights the ongoing tension between fostering innovation in the rapidly evolving AI sector and establishing necessary safeguards to protect public interests. As AI technology continues to advance, the debate over appropriate regulation is expected to remain a critical issue in both state and national policy discussions.

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Judge Blocks California's New AI Deepfake Law Amid First Amendment Concerns

A federal judge has temporarily halted enforcement of California's recently enacted AI deepfake law, AB 2839, just weeks after its signing by Governor Gavin Newsom. The law, which targets distributors of AI-generated deepfakes on social media, particularly those depicting political candidates, was challenged by Christopher Kohls, the creator of a controversial Kamala Harris deepfake.

U.S. District Judge John Mendez issued a preliminary injunction, preventing California's attorney general from enforcing the law against Kohls or others, except for audio messages. Judge Mendez ruled that the law was overly broad and could potentially infringe on protected speech, including satire and political commentary.

The judge emphasized that while concerns about digital manipulation are valid, they don't justify overriding First Amendment protections. He noted that existing legal avenues, such as privacy torts and defamation laws, already provide recourse for those affected by manipulated content. The ruling highlights the delicate balance between preserving election integrity and protecting free speech rights.

This case underscores the challenges in regulating AI-generated content and may have significant implications for future attempts to legislate against AI deepfakes. As one of 18 new AI-related laws recently signed by Governor Newsom, this ruling reflects the ongoing legal and ethical debates surrounding AI's role in political discourse and election-related content.

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YouTube Blocks Major Artists' Videos in US Amid SESAC Dispute

YouTube has made numerous videos featuring music from high-profile artists like Adele, Green Day, Bob Dylan, Nirvana, and R.E.M. unavailable in the United States. This action comes as a result of failed negotiations between YouTube and SESAC, a performing rights organization representing over 35,000 music artists and publishers.

Since Saturday, users attempting to play affected videos have been met with a message stating: "This video contains content from SESAC. It is not available in your country." The block appears to be inconsistent, with some videos from these artists remaining accessible, possibly due to exemption from the dispute or oversight.

YouTube has publicly addressed the issue, stating that despite their best efforts, they were unable to reach an equitable agreement with SESAC before the expiration of their previous deal. The platform emphasized its respect for copyright and expressed hope for a swift resolution through ongoing negotiations.

This situation bears similarities to the recent dispute between Universal Music Group and TikTok, which resulted in UMG pulling songs by major artists from the platform during royalty negotiations. However, unlike UMG, SESAC is not a record label but a royalty collection organization for songwriters and publishers, similar to ASCAP and BMI.

The blocked content affects a wide range of popular artists, including Burna Boy, George Clinton, Kenny Rogers, and Kings of Leon, among others. As negotiations continue, the duration of this content blockage remains uncertain, impacting both artists and viewers on one of the world's largest video platforms.

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EU Fines Meta €91 Million for Password Storage Violations

The European Union's lead privacy regulator, Ireland's Data Protection Commission (DPC), has imposed a €91 million ($101.5 million) fine on Meta for improperly storing some users' passwords without encryption or protection. This decision comes after a five-year investigation sparked by Meta's own notification to the DPC about the incident in 2019.

Key points of the case:

1. Meta stored some user passwords in 'plaintext', making them potentially vulnerable to unauthorized access.
2. Meta publicly acknowledged the incident in 2019 and promptly notified the DPC.
3. The DPC confirmed that the passwords were not made available to external parties.
4. The DPC emphasized that storing user passwords in plaintext is widely considered a security risk.
5. The company stated it took immediate action to fix the error upon discovery during a security review in 2019. Meta claims there's no evidence of password abuse or improper access.
6. This fine adds to a total of €2.5 billion in penalties imposed on Meta by the DPC for GDPR violations since 2018, including a record €1.2 billion fine in 2023 that Meta is currently appealing.
7. The DPC serves as the lead EU regulator for many major U.S. tech companies due to their EU operations being based in Ireland.

This case underscores the EU's ongoing efforts to enforce stringent data protection standards and holds tech giants accountable for lapses in user data security. It also highlights the importance of proper password encryption and storage practices in maintaining user privacy and security in the digital age.

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In this fast-paced, ever-changing world, it can be challenging to stay updated with the latest legal news in the AI and tech sectors. I hope you found this digest helpful and were able to free up some time for the real joys of life.

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Anita