WEBVTT - Amazon Antitrust Suit & Authors Sue Over AI 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brosso from Bloomberg Radio. 0:00:09.240 --> 0:00:13.320 The Federal Trade Commission and seventeen states are suing Amazon 0:00:13.680 --> 0:00:17.840 over allegations the e commerce giant abuses its position in 0:00:17.880 --> 0:00:21.800 the marketplace to inflate prices on and off its platform, 0:00:22.120 --> 0:00:26.279 overcharged sellers, and stifle competition. The lawsuit is one of 0:00:26.320 --> 0:00:30.080 the most significant legal challenges brought against Amazon in its 0:00:30.160 --> 0:00:35.000 nearly thirty year history, accusing it of monopolizing online marketplace 0:00:35.080 --> 0:00:40.000 services by degrading quality for shoppers and overcharging sellers. The 0:00:40.080 --> 0:00:44.240 case also represents a career defining moment for FTC Chair 0:00:44.360 --> 0:00:47.720 Lena Khan, whose long had Amazon in her sights. 0:00:48.720 --> 0:00:52.680 So this case is entirely pro business. It is tens 0:00:52.680 --> 0:00:55.840 of thousands of businesses that are dependent on Amazon to 0:00:56.040 --> 0:00:59.720 reach shoppers that increasingly are paying one out of every 0:00:59.760 --> 0:01:02.360 two two dollars, as well as being subjected to all 0:01:02.400 --> 0:01:07.480 sorts of arbitrary tactics. So we believe that this lawsuit 0:01:07.520 --> 0:01:11.440 of where successful will actually entirely restore the promise of 0:01:11.640 --> 0:01:15.360 free competition. Our free enterprise system is one where a 0:01:15.360 --> 0:01:18.000 companies should be competing on the merits and not be 0:01:18.080 --> 0:01:21.120 able to protect their monopoly power through illegal tactics. 0:01:21.440 --> 0:01:25.319 Joining me is Jennifer Ree, Bloomberg Intelligence Senior litigation analyst, 0:01:25.720 --> 0:01:27.960 jen this lawsuit comes as no surprise. 0:01:28.400 --> 0:01:29.200 Oh not at all. 0:01:29.240 --> 0:01:31.680 I mean, we've all been expecting this for years. The 0:01:31.720 --> 0:01:35.640 investigation of Amazon actually started during Trump's FTC and it 0:01:35.720 --> 0:01:39.120 was already ongoing when the chair, the current chair, Lina Kahan, 0:01:39.200 --> 0:01:41.800 took her position, which was back in twenty twenty one. 0:01:42.080 --> 0:01:43.920 And when she did, I mean, it was sort of 0:01:43.959 --> 0:01:46.760 widely thought that she was hired partially because of her 0:01:47.480 --> 0:01:51.680 very overt outspoken antagonism toward Amazon. She had written a 0:01:51.720 --> 0:01:54.800 long article in twenty seventeen while in law school or 0:01:54.800 --> 0:01:57.080 at least for the Yale Law Journal, basically saying that 0:01:57.120 --> 0:01:59.960 she thought that Amazon behaved as an anti competitive monopoly. 0:02:00.280 --> 0:02:02.200 So this is no surprise at all. 0:02:02.480 --> 0:02:05.280 So tell us what the FTC and the seventeen states 0:02:05.320 --> 0:02:06.480 are accusing Amazon of. 0:02:06.800 --> 0:02:09.560 You know, they're really focusing on it's marketplace, right, because 0:02:09.560 --> 0:02:12.440 Amazon has other businesses outside of what we as consumers 0:02:12.520 --> 0:02:15.800 know of Amazon, So they're focusing on the way Amazon 0:02:15.840 --> 0:02:19.000 treats sellers. And they're essentially saying that some of the 0:02:19.120 --> 0:02:22.120 policies and some of the conditions they impose on these sellers. 0:02:22.240 --> 0:02:25.480 One cause prices outside of Amazon to go up. In 0:02:25.520 --> 0:02:28.480 other words, sellers if they discount a product where they're 0:02:28.520 --> 0:02:31.440 selling somewhere outside of Amazon more so than they have 0:02:31.560 --> 0:02:34.800 on Amazon, haven't offered Amazon the lowest price that they offer, 0:02:35.080 --> 0:02:38.000 that that seller then gets punished. That's one thing. And 0:02:38.080 --> 0:02:41.800 they also allege that Amazon punishes sellers by sort of 0:02:41.800 --> 0:02:44.320 pushing them down in search results or taking them out 0:02:44.320 --> 0:02:47.239 of the buybox if they don't use Amazon's fulfillment services. 0:02:47.280 --> 0:02:49.720 That's using Amazon to store the product package of the 0:02:49.760 --> 0:02:51.880 product and send the product when somebody buys it. So 0:02:51.919 --> 0:02:55.400 it's really all about sort of unfair treatment of the 0:02:55.480 --> 0:02:56.919 sellers that are on the marketplace. 0:02:57.040 --> 0:02:59.960 And it's really important where you are in those Amazon 0:03:00.080 --> 0:03:03.000 on searches, because a lot of people don't get past 0:03:03.280 --> 0:03:07.320 the first two or three. Lena Khan said Amazon is 0:03:07.320 --> 0:03:10.520 a monopolist and is exploiting its monopolies in ways that 0:03:10.600 --> 0:03:14.160 leave shoppers and sellers paying more for worse service. But 0:03:14.360 --> 0:03:19.000 are shoppers paying more because I find that the prices 0:03:19.040 --> 0:03:23.400 on Amazon are often cheaper than they are elsewhere. 0:03:23.680 --> 0:03:26.520 Well, of course, that's exactly what Amazon's defense is going 0:03:26.600 --> 0:03:29.600 to be no. We offer convenience and speed and low prices. 0:03:29.639 --> 0:03:31.320 And part of the reason that we have some of 0:03:31.320 --> 0:03:34.480 our policies in place that require these sellers on our 0:03:34.520 --> 0:03:37.080 platform to provide the lowest price on Amazon is because 0:03:37.080 --> 0:03:39.000 that's what our consumers expect. 0:03:39.080 --> 0:03:40.080 That's what we've. 0:03:39.880 --> 0:03:42.160 Held ourselves out to be the lowest price that you 0:03:42.200 --> 0:03:43.560 can get out there in the marketplace. 0:03:43.600 --> 0:03:44.440 And this is pro. 0:03:44.280 --> 0:03:47.840 Competitive, not anti competitive. But on the other side, you know, 0:03:47.880 --> 0:03:50.320 there may be some evidence that because it's a little 0:03:50.360 --> 0:03:53.080 more expensive for a company to sell a product on 0:03:53.120 --> 0:03:56.000 Amazon than some other website, let's say Etsy or their 0:03:56.040 --> 0:03:59.560 own proprietary website, that they end up raising the price 0:03:59.600 --> 0:04:02.840 outside of Amazon on those websites because if they have 0:04:02.880 --> 0:04:04.880 to offer the lowest price on Amazon, they don't want 0:04:04.920 --> 0:04:07.720 to kill their margins selling on Amazon. So instead of 0:04:07.800 --> 0:04:11.120 lowering their price everywhere, they're increasing it outside. So people 0:04:11.160 --> 0:04:14.160 who bought that product outside of Amazon are actually paying 0:04:14.160 --> 0:04:16.200 a higher price. And I think that's part of the 0:04:16.240 --> 0:04:18.320 allegation of the increased prices. 0:04:18.960 --> 0:04:21.719 Amazon is a monopolist. Is that accepted that it's a 0:04:21.720 --> 0:04:22.600 monopolist or not? 0:04:22.800 --> 0:04:23.760 You know, yes and no. 0:04:24.120 --> 0:04:26.640 The thing about it address law is whether or not 0:04:26.720 --> 0:04:29.520 you're a monopolist all depends on how the market's defined. 0:04:29.839 --> 0:04:31.760 You have to look at the contours of the market. 0:04:31.800 --> 0:04:34.120 What is the market you're competing in now? 0:04:34.279 --> 0:04:36.880 I think the FTC in this lawsuit's basically. 0:04:36.440 --> 0:04:39.719 Provided two market definitions. One is the consumer side. It's 0:04:39.760 --> 0:04:42.560 a broad online marketplace to buy all sorts of goods, 0:04:42.800 --> 0:04:45.120 and the other one it's a broad online marketplace for 0:04:45.200 --> 0:04:48.240 sellers to sell all their goods. Two pieces of the market. 0:04:48.320 --> 0:04:51.560 And I suppose if that is accepted as the relevant 0:04:51.560 --> 0:04:54.560 market by the court, then you might be able to 0:04:54.680 --> 0:04:57.119 argue that they're a monopolist, that they have monopoly power. 0:04:57.160 --> 0:04:59.360 But the fact of the matter is that I at 0:04:59.440 --> 0:05:02.320 least haven't yet seeing it defined that way. I've seen 0:05:02.960 --> 0:05:06.479 market definitions like an online seller of ebooks right that 0:05:06.520 --> 0:05:09.359 they have monopoly power in ebook sales, or they have 0:05:09.400 --> 0:05:12.599 monopoly power in certain segments. Because for each of these 0:05:12.600 --> 0:05:16.280 items that Amazon sells, there are alternatives, and those alternatives 0:05:16.360 --> 0:05:18.640 may be different depending on what type of item it is. 0:05:18.880 --> 0:05:21.359 They may be broader, they may be narrower, depending on 0:05:21.360 --> 0:05:23.520 the items. So it's going to depend on how that 0:05:23.560 --> 0:05:26.120 market's defined, and that's something the FTC is actually going 0:05:26.160 --> 0:05:28.120 to have to support and prove in this trial the 0:05:28.160 --> 0:05:29.520 proper definition of the market. 0:05:29.800 --> 0:05:31.720 I mean, if you had to be on one side 0:05:31.720 --> 0:05:33.680 of this case, would you rather be on the FTC 0:05:33.920 --> 0:05:35.920 side or would you rather be on Amazon side? 0:05:36.040 --> 0:05:38.239 You know, I think I'd rather be on Amazon side. 0:05:38.279 --> 0:05:40.360 And the reason I say that is because I think 0:05:40.360 --> 0:05:42.480 this is a tough case for the FTC to win 0:05:42.560 --> 0:05:45.000 to start, And I'm not saying that they can't because 0:05:45.080 --> 0:05:47.120 facts matter, and we don't know what the facts and 0:05:47.160 --> 0:05:49.720 the evidence are yet. It will matter what they prove 0:05:49.800 --> 0:05:52.880 in court, what the experts say, and what the testimony is, 0:05:52.920 --> 0:05:55.599 and what Amazon's documents look like. But I think the 0:05:55.720 --> 0:05:58.680 reason I ultimately come down on Amazon side is because 0:05:58.800 --> 0:06:03.039 I don't think if liabilities proven that ultimately those remedies 0:06:03.080 --> 0:06:07.279 are going to be particularly drastic. I don't really see 0:06:07.279 --> 0:06:11.279 a structural breakup. What I think will happen are behavioral changes. 0:06:11.400 --> 0:06:11.839 Amazon. 0:06:11.920 --> 0:06:14.479 You simply can't do this anymore. You can't push a 0:06:14.520 --> 0:06:17.320 seller way down in the search results simply because they 0:06:17.360 --> 0:06:20.520 don't use your fulfillment surfaces, or you can't force them 0:06:20.560 --> 0:06:23.320 to provide the lowest price on Amazon dot Com, and 0:06:23.480 --> 0:06:26.960 very Interestingly, Amazon's already promised to do most of that 0:06:27.040 --> 0:06:29.560 in the UK and in the EU, so it clearly 0:06:29.640 --> 0:06:32.159 is willing to change some of its rules and change 0:06:32.200 --> 0:06:34.479 some of the way it treats sellers in order to 0:06:34.480 --> 0:06:37.320 make these lawsuits go away. But the FDC didn't accept 0:06:37.320 --> 0:06:38.200 those concessions. 0:06:38.360 --> 0:06:41.560 But the FDC in this suit, unlike even mentioning it 0:06:41.680 --> 0:06:45.039 in the Google suit, is not seeking a breakup of Amazon. 0:06:45.560 --> 0:06:46.960 Well, we don't really know yet. 0:06:47.040 --> 0:06:49.720 I'd say that they haven't specifically said that, but their 0:06:49.800 --> 0:06:52.560 language is vague. You know, they're asking for a permanent 0:06:52.560 --> 0:06:54.680 injunction and they're asking for the court to do what 0:06:54.720 --> 0:06:58.479 it needs to do to stop the monopolistic conduct. And 0:06:58.560 --> 0:07:01.360 really what that means is it gives them leeway down 0:07:01.400 --> 0:07:04.719 the road after liability is proven, because that's obviously the 0:07:04.760 --> 0:07:08.000 first step to actually seek a remedy, which is a breakup. 0:07:08.320 --> 0:07:11.120 And normally when these kinds of cases are brought by 0:07:11.160 --> 0:07:14.240 the DOJ or by the FDC, they don't explicitly state 0:07:14.280 --> 0:07:17.120 what they're looking for in a remedy early on. That 0:07:17.160 --> 0:07:19.600 comes later, and I think they still could ask for 0:07:19.640 --> 0:07:20.400 something like that. 0:07:21.160 --> 0:07:25.080 So Amazon's general counsel said, if the FTC gets its way, 0:07:25.240 --> 0:07:28.960 the result would be fewer products to choose from, higher prices, 0:07:29.160 --> 0:07:33.240 slower deliveries for consumers, and reduced options for small businesses, 0:07:33.440 --> 0:07:36.360 the opposite of what antitrust law is designed to do. 0:07:36.760 --> 0:07:39.440 And that's what I'm saying about. How can you beat 0:07:39.480 --> 0:07:42.080 Amazon for like getting it to you the next day? 0:07:42.600 --> 0:07:44.200 Well, you know this is why I say, I think 0:07:44.200 --> 0:07:46.679 this is an uphill climb for the FDC. It's really 0:07:46.720 --> 0:07:50.840 difficult to argue against the pro competitive aspects of the company. 0:07:50.880 --> 0:07:54.400 I mean, it has created a very efficient, very consumer 0:07:54.480 --> 0:07:59.239 friendly marketplace essentially that consumers love. They do get low prices, 0:07:59.280 --> 0:08:01.920 they do get speed delivery. They makes it very easy. 0:08:01.920 --> 0:08:04.840 There's one stop shopping, this is all and returns and 0:08:04.960 --> 0:08:07.640 returns exactly and a lot of help by the way, 0:08:07.680 --> 0:08:09.120 when there's an issue with the product. 0:08:09.160 --> 0:08:10.600 Because I've done that myself. 0:08:11.000 --> 0:08:14.760 So I think that when you look at monopolization cases, 0:08:14.760 --> 0:08:15.520 they're based. 0:08:15.240 --> 0:08:18.120 On a reasonableness standard. So what a judge has to do. 0:08:18.400 --> 0:08:21.160 Is they have to weigh sort of the harm against 0:08:21.160 --> 0:08:24.480 the pro competitive side, and whichever side wins out, that's 0:08:24.520 --> 0:08:26.960 where you land whether you violate the law or not. 0:08:27.520 --> 0:08:30.560 Is it a reasonable or unreasonable restraint of trade that 0:08:30.560 --> 0:08:33.520 we're looking at. And I think that when you have 0:08:33.600 --> 0:08:37.240 strong pro competitive justifications for what you're doing, it makes 0:08:37.240 --> 0:08:40.199 it harder for a plaintiff, even the FTC, to win 0:08:40.240 --> 0:08:42.280 a case. And so I think you just put your 0:08:42.360 --> 0:08:45.080 finger on the head of what the issue is here. 0:08:45.559 --> 0:08:48.280 Is this the third time that the FTC is suing 0:08:48.320 --> 0:08:50.560 Amazon this year or recently. 0:08:50.440 --> 0:08:51.240 Something like that. 0:08:51.280 --> 0:08:53.920 The other suits are all consumer protection suits, so this 0:08:54.000 --> 0:08:57.559 is their first antitrust suit against Amazon. The others had 0:08:57.559 --> 0:09:00.560 to were on their consumer protection side. Quite differ from this. 0:09:01.200 --> 0:09:05.480 Fewer states joined the Amazon suit than the Justice Department 0:09:05.679 --> 0:09:10.920 suit against Google or the FTC's earlier suit against Meta. 0:09:11.000 --> 0:09:12.000 Is there a reason for that? 0:09:12.920 --> 0:09:14.280 You know, It's very difficult to say. 0:09:14.320 --> 0:09:17.400 The states probably were all asked, and they weigh the 0:09:17.440 --> 0:09:19.800 pros and cons of being part of a suit. They 0:09:19.920 --> 0:09:23.000 tend to be more political the state attorney's general, let's say, 0:09:23.000 --> 0:09:25.400 than the FTC, I think, and some of them may 0:09:25.480 --> 0:09:29.440 be more concerned about consumer perception here that consumers tend 0:09:29.440 --> 0:09:32.640 to really like Amazon, whereas I think the perception about 0:09:32.640 --> 0:09:35.560 Google is maybe less positive generally when you look at 0:09:35.640 --> 0:09:38.719 consumer polls, and they also do see the pro competitive 0:09:38.800 --> 0:09:42.480 side of Amazon's business. So I think that's probably why 0:09:42.520 --> 0:09:46.080 you see fewer states joining here than in the Google case, 0:09:46.120 --> 0:09:48.240 but they could still join going forward. 0:09:48.720 --> 0:09:50.760 You know, it's been in business thirty years. Do you 0:09:50.800 --> 0:09:53.920 think the Amazon sees this as a real threat to 0:09:54.040 --> 0:09:54.800 its business? 0:09:55.400 --> 0:09:57.840 You know, I think that anytime you're sued by the 0:09:57.840 --> 0:10:01.800 Federal Trade Commission, it's a risk, right and your documents, 0:10:01.840 --> 0:10:05.760 your information, your executives are exposed what's mostly public trial, 0:10:06.120 --> 0:10:09.120 it's always a risk, and it can bring bad pr 0:10:09.400 --> 0:10:12.040 to the company. You know, there certainly have to be 0:10:12.080 --> 0:10:15.120 somewhat unhappy about it, but I don't think they view 0:10:15.160 --> 0:10:18.280 it as a long term major risk to the company. 0:10:19.120 --> 0:10:22.720 Talking about Lena Kahan, and they have tried to get 0:10:22.720 --> 0:10:27.720 her recused from the cases against them, right, Yes, didn't work. 0:10:27.720 --> 0:10:28.840 You know, it didn't work. 0:10:29.080 --> 0:10:31.080 So they got tried to get her recused because it 0:10:31.120 --> 0:10:33.400 was clear what her position was about Amazon back in 0:10:33.400 --> 0:10:37.040 twenty seventeen. And that's why we've all expected this lawsuit 0:10:37.040 --> 0:10:39.760 for so long, because we knew that her view was 0:10:39.800 --> 0:10:43.440 that this company behaves illegally in an anti competitive manner. 0:10:43.720 --> 0:10:46.040 The issue is that she's not the one who's going 0:10:46.120 --> 0:10:48.839 to make this decision. This is in federal court, so 0:10:48.880 --> 0:10:51.120 she's acting as a prosecutor, and when you act as 0:10:51.120 --> 0:10:52.800 a prosecutor, that is what you do. 0:10:53.240 --> 0:10:54.319 You know, if she. 0:10:54.320 --> 0:10:56.680 Did a new investigation of Amazon looking at the same 0:10:56.720 --> 0:10:58.680 facts that she looked at three years ago, I don't 0:10:58.679 --> 0:11:01.840 think she'd come out any Differently. Where a lawsuit is 0:11:01.840 --> 0:11:04.560 brought internally at the FTC, that can be a different 0:11:04.640 --> 0:11:08.240 matter because ultimately the Commissioners are the appellate panel for that, 0:11:08.600 --> 0:11:11.560 an administrative law judge makes the first decision and. 0:11:11.480 --> 0:11:12.320 Then the commissioners. 0:11:12.360 --> 0:11:14.439 The appeal goes to the commissioners and they are acting 0:11:14.480 --> 0:11:17.280 as judge. And in that kind of an instance, I 0:11:17.280 --> 0:11:20.199 think it would have been different with respect to recusal. 0:11:20.240 --> 0:11:22.520 But in this instance, where it's out of her hands 0:11:22.520 --> 0:11:27.120 now she's just prosecuting, presenting the facts, presenting evidence. Some 0:11:27.360 --> 0:11:30.720 other party. The judge in this case will make the decision. 0:11:31.200 --> 0:11:32.840 I think it's less impactful. 0:11:33.920 --> 0:11:38.280 Earlier this year, the FTC challenged Meta acquiring the virtual 0:11:38.440 --> 0:11:42.560 reality company Within and lost that. FTC also lost a 0:11:42.600 --> 0:11:47.360 similar suit attempting to block Microsoft's acquisition of Activision. So 0:11:47.960 --> 0:11:52.280 how much will this case define Lena Khan's career? 0:11:52.760 --> 0:11:55.000 You know, I think those two cases are quite different 0:11:55.320 --> 0:11:58.480 from this one, different standards. They were pursued under a 0:11:58.520 --> 0:12:01.080 different antitrust statute, and to be fair, by the way, 0:12:01.480 --> 0:12:04.480 the FTC is still appealing the Microsoft activision decision, so 0:12:04.520 --> 0:12:06.880 it's not completely finished yet, even though I do think 0:12:06.920 --> 0:12:09.160 the companies will be able to close that deal. I 0:12:09.240 --> 0:12:13.000 think these more than those, this one, this Amazon case 0:12:13.080 --> 0:12:15.560 more so than those two, because it's just a long 0:12:15.600 --> 0:12:19.040 time coming, and it's been her goal to try to 0:12:19.160 --> 0:12:23.079 pull the way antitrust laws have been interpreted back to 0:12:23.120 --> 0:12:26.320 the way they were interpreted more like in the nineteen sixties. 0:12:26.520 --> 0:12:28.400 You know, there was a big change in the nineteen 0:12:28.440 --> 0:12:31.240 seventies and nineteen eighties and the way the antitrust laws 0:12:31.320 --> 0:12:34.960 were interpreted and then in the way that enforcement played out. 0:12:35.559 --> 0:12:39.120 And her view is that because of that change, anti 0:12:39.120 --> 0:12:42.040 trust enforcement became too lenient and too lax, and that 0:12:42.080 --> 0:12:45.200 we have to go back to where we were sometime 0:12:45.240 --> 0:12:49.040 before the nineteen seventies, where we really looked at market structure. 0:12:49.320 --> 0:12:52.239 It just made a presumption that if a market was concentrated, 0:12:52.280 --> 0:12:55.360 it was likely to cause harm to consumers, rather than 0:12:55.400 --> 0:12:58.559 looking at whether prices to consumers are going up or 0:12:58.600 --> 0:13:02.640 output is getting low, but putting the structure aside. So 0:13:02.760 --> 0:13:06.120 even if it's an oligopolistic structure, so long as prices 0:13:06.160 --> 0:13:09.240 to consumers are low and output stays up, we're okay. 0:13:09.600 --> 0:13:11.520 And she's trying to bring it back to where it was. 0:13:11.559 --> 0:13:13.720 And I think this suit is a big step in 0:13:13.760 --> 0:13:16.640 that direction, as those two merger suits were, but they 0:13:16.679 --> 0:13:17.800 were sort of baby steps. 0:13:17.800 --> 0:13:19.920 This is a big step and we'll see just how 0:13:19.960 --> 0:13:24.440 this big step goes for the FTC. Thanks so much, Jen, 0:13:25.080 --> 0:13:28.880 that's Bloomberg Intelligence Senior Litigation analyst, Jennifer Ree. 0:13:29.440 --> 0:13:32.720 I will be working alongside humans to provide assistance and 0:13:32.760 --> 0:13:37.200 support and will not be replacing any existing jobs. Sure 0:13:37.240 --> 0:13:40.560 about that, Gus, Yes, I am sure. 0:13:40.920 --> 0:13:44.800 It was the first human robot press conference. In July, 0:13:44.960 --> 0:13:49.239 a United Nations tech agency assembled a group of robots 0:13:49.320 --> 0:13:53.040 that look like humans to answer reporters questions about the 0:13:53.080 --> 0:13:55.080 future of artificial intelligence. 0:13:55.559 --> 0:13:58.360 I think my great moment will be when people realize 0:13:58.400 --> 0:14:01.120 that robots like me can be you to help improve 0:14:01.200 --> 0:14:04.240 our lives and make the world a better place. I 0:14:04.320 --> 0:14:06.800 believe it's only a matter of time before we see 0:14:06.840 --> 0:14:10.480 thousands of rombots just like me out there making a difference. 0:14:10.480 --> 0:14:14.280 That time is already here in many respects. Apple's Siri 0:14:14.400 --> 0:14:17.600 has been responding to your questions for more than a decade, 0:14:17.760 --> 0:14:21.520 and the release last year of chat GPT has opened 0:14:21.520 --> 0:14:25.440 a worldwide debate about artificial intelligence and led to the 0:14:25.440 --> 0:14:29.640 filing of lawsuits over intellectual property rights. The latest a 0:14:29.720 --> 0:14:33.560 proposed class action by more than a dozen well known authors, 0:14:33.600 --> 0:14:37.680 including John Grisham and George R. R. Martin, against open 0:14:37.720 --> 0:14:42.880 Ai for copyright infringement, calling its chat GPT program a 0:14:42.920 --> 0:14:47.520 massive commercial enterprise that relies on systematic theft on a 0:14:47.600 --> 0:14:51.560 mass scale. My guest is intellectual property litigator Terence Ross, 0:14:51.600 --> 0:14:54.720 a partner at Katin Yuchen Rosenmann. This is, I believe, 0:14:54.800 --> 0:15:00.400 the third lawsuit like this over chat GPT. What's about 0:15:00.400 --> 0:15:01.000 the complaint? 0:15:01.680 --> 0:15:04.720 So, this particular lawsuit is brought by the Author's Guild, 0:15:04.760 --> 0:15:09.840 which is association that represents authors for various reasons, and 0:15:09.960 --> 0:15:14.960 here they have taken the position that open AI's chat GPT, 0:15:15.480 --> 0:15:19.920 which is an artificial intelligence system with a learning module 0:15:19.960 --> 0:15:23.400 built in so that it can actually improve its ability 0:15:23.440 --> 0:15:26.720 to function by learning. But the Author's Guild has alleged 0:15:26.800 --> 0:15:32.560 that feeding the chat GPT the works of its authors 0:15:32.600 --> 0:15:36.160 to help it learn, and then the chat GPT using 0:15:36.280 --> 0:15:41.640 that to answer queries, which often involves quoting passages from 0:15:41.880 --> 0:15:46.040 the author's works, is a copyright infringement. And the lawsuit 0:15:46.120 --> 0:15:49.680 is brought as a class action on behalf of a 0:15:49.840 --> 0:15:52.720 very large class of authors here in the United States, 0:15:52.880 --> 0:15:55.240 and it'll have to be determined at some subsequent date 0:15:55.320 --> 0:15:58.040 during the legation whether or not it's a legitimate class 0:15:58.040 --> 0:16:01.040 action or not. But it's a sally all the authors 0:16:01.080 --> 0:16:04.200 in the United States suing open Ai, the owner of 0:16:04.280 --> 0:16:08.880 chat GPT, over how they're using the author's works through 0:16:08.960 --> 0:16:09.600 chat GPT. 0:16:09.960 --> 0:16:13.560 In another suit brought by authors last month, open Ai 0:16:13.840 --> 0:16:17.360 move to dismiss the complaint and argued that the training 0:16:17.400 --> 0:16:20.400 basically constitutes fair use. So it seems like their defense 0:16:20.440 --> 0:16:21.800 is going to be fair use. 0:16:22.400 --> 0:16:26.800 That's absolutely correct, and a fair use's statutory provision in 0:16:27.000 --> 0:16:29.880 the Copyright Act of nineteen seventy six that provides that 0:16:30.000 --> 0:16:35.119 in certain instances, copyright work can be used for secondary 0:16:35.160 --> 0:16:40.400 purposes that society deems as worthwhile useful. You know, the 0:16:40.440 --> 0:16:44.040 most important from your perspective is for news gathering and 0:16:44.160 --> 0:16:49.960 news broadcasting. But teaching is one of the expressly listed 0:16:50.280 --> 0:16:55.080 peeps of uses secondary uses that would be considered fair use. 0:16:55.360 --> 0:16:59.600 And it's a very interesting defense. Now, the statute Section 0:16:59.640 --> 0:17:03.840 one US the Copyright Act actually says nonprofit educational purposes, 0:17:04.400 --> 0:17:07.240 and that may pose a problem to open AI because 0:17:07.240 --> 0:17:11.399 I'm not sure if this would legitimately qualifies a nonprofit 0:17:11.680 --> 0:17:16.880 educational purpose or not. But it's a colorable defense. 0:17:16.960 --> 0:17:20.359 Quite Frankly, we talked last term about the Supreme Court's 0:17:20.359 --> 0:17:23.959 decision in the Warhol case that rained in the scope 0:17:24.000 --> 0:17:27.240 of fair use. So do you think that courts are 0:17:27.440 --> 0:17:31.399 likely to maybe rein in fair use in this case? 0:17:32.560 --> 0:17:36.400 So I'm not sure that the Warhol case is going 0:17:36.480 --> 0:17:39.480 to have any impact on this case whatsoever. I think 0:17:39.480 --> 0:17:44.880 the Warhol case does reign in the uses of the defense, 0:17:44.920 --> 0:17:49.120 the fair use on the margins. But as I understand 0:17:49.560 --> 0:17:52.679 the defense being raised by open AI in these lawsuits, 0:17:52.960 --> 0:17:55.639 it's really the core of fair use. You know, the 0:17:55.680 --> 0:18:00.520 statute was intended to protect certain types of secondary uses, 0:18:00.840 --> 0:18:03.879 and it listed examples of them. It's not all encompassing, 0:18:03.960 --> 0:18:08.160 it's not exclusive list, but one of the expressly listed 0:18:08.200 --> 0:18:12.160 purposes and nonprofit educational purposes, and therefore this is at 0:18:12.200 --> 0:18:17.040 the core of the fair use doctrine, and I really 0:18:17.080 --> 0:18:21.680 don't see how the Andy Warhol case will limit that anyway. 0:18:22.640 --> 0:18:27.720 The authors claim that chat gpt can produce works that 0:18:27.920 --> 0:18:31.760 mimic their books, and there are businesses that sell prompts 0:18:31.880 --> 0:18:36.000 allowing users to create what's essentially works of fan fiction. 0:18:36.760 --> 0:18:40.080 That's exactly what the concern here is. And in one sense, 0:18:40.119 --> 0:18:45.000 the fair use defense being raised by OpenAI is really diversionary. 0:18:45.320 --> 0:18:47.520 They are saying that they are feeding all of this 0:18:47.680 --> 0:18:51.280 data into chat gpt so that it learns, and part 0:18:51.280 --> 0:18:54.280 of that process of feeding data into it is feeding 0:18:54.320 --> 0:18:59.560 into the machine entire novel as well as fact based 0:18:59.600 --> 0:19:03.200 works which have lower copyright protection. That's all being fed 0:19:03.200 --> 0:19:06.320 in purportedly so that the machine learned. The problem is 0:19:06.680 --> 0:19:10.240 less with that, in my view, than what happens after 0:19:10.320 --> 0:19:13.960 it learns. It's the output of chat GPT that is 0:19:13.960 --> 0:19:18.480 the problem. And when it, in response to queries quotes 0:19:19.080 --> 0:19:23.399 copyright it works, or on behalf of a query from 0:19:23.440 --> 0:19:28.960 an individual, creates a purportedly original work that incorporates copyrighted 0:19:29.280 --> 0:19:33.600 language or large portion of a copyright work, that copyright 0:19:33.680 --> 0:19:37.119 infringement in the classic sense straight up and up copying, 0:19:37.480 --> 0:19:41.159 and that is the core problem here, that there is 0:19:41.280 --> 0:19:45.639 no apparent restraint on chat gpt from doing that in 0:19:45.680 --> 0:19:50.240 response to queries from individual users of the machine. 0:19:50.320 --> 0:19:52.400 And there's also a question of whether you can get 0:19:52.400 --> 0:19:57.400 a copyright on works created by artificial intelligence, and there 0:19:57.480 --> 0:20:01.160 was an interesting first time ruling on that by DC 0:20:01.359 --> 0:20:03.960 Federal Judge Beryl Howell tell us about that. 0:20:04.600 --> 0:20:09.000 So the whole area of artificial intelligence is raising a 0:20:09.080 --> 0:20:12.800 host of problems for intellectual property laws. The Author's guild 0:20:12.880 --> 0:20:16.840 lawsuit against Open AI is one aspect of that. Another 0:20:16.920 --> 0:20:22.040 aspect is whether the creations of chat GPT or other 0:20:22.119 --> 0:20:25.800 AI type machine is protected by intellectual property. And so 0:20:26.119 --> 0:20:29.520 a gentleman by the name of Stephen Taller has an 0:20:29.600 --> 0:20:32.920 AI system that he refers to as the Creativity Machine, 0:20:33.640 --> 0:20:39.359 and it created, according to him, an autonomously generated piece 0:20:39.480 --> 0:20:43.760 of visual art. I eat, a painting which the machine 0:20:43.920 --> 0:20:48.080 entitled a recent entrance to paratus. It's actually quite attractive painting. 0:20:48.520 --> 0:20:53.280 And mister Taller applied for copyright registration with the United 0:20:53.320 --> 0:20:58.480 States Copyright Office on behalf of the Creativity Machine, reporting 0:20:58.520 --> 0:21:01.560 to the Copyright Office that the painting had been autonomously 0:21:01.960 --> 0:21:06.760 generated by his AI machine, and the Copyright Office rejected 0:21:06.800 --> 0:21:11.080 that application on the grounds that copyright only protects creations 0:21:11.320 --> 0:21:15.960 by human beings. Mister Toller appealed that ruling to the 0:21:16.080 --> 0:21:18.760 United States District Court for the District Columbia, where the 0:21:18.800 --> 0:21:22.119 Copyright Office is based, and that court just issued a 0:21:22.240 --> 0:21:28.000 very important opinion of first impression saying that artificial intelligence 0:21:28.240 --> 0:21:31.800 is not entitled to claim copyright in anything it quote 0:21:31.880 --> 0:21:36.679 unquote creates, going further to say that human authorship is 0:21:36.720 --> 0:21:40.520 an essential, unrequired part for a valid copyright claim. It's 0:21:40.560 --> 0:21:43.760 a very important decision in this field of artificial intelligent 0:21:43.840 --> 0:21:46.880 will almost certainly be appealed to the DC Circuit. 0:21:47.240 --> 0:21:49.680 I mean, was the judge on solid ground. 0:21:50.160 --> 0:21:54.080 So Judge Howell's decision is actually really quite good. The 0:21:54.160 --> 0:21:58.080 DC courts do not often see copyright cases. It's just 0:21:58.160 --> 0:22:00.760 simple fact. We've talked about this before. The bulk of 0:22:00.840 --> 0:22:03.400 copyright cases come from the Second Circuit of New York 0:22:03.560 --> 0:22:07.000 in the Ninth Circuit California, specifically Los Angeles. And so 0:22:07.040 --> 0:22:10.359