Commercial Awareness Update – W/C 28th October 2024

PUBLISHERS v AI: THE LATEST BATTLE

As AI companies gain popularity, they face increasing scrutiny.

Journalists, publishers, and media outlets are pushing for control over AI tools that summarise their content without proper attribution.

In the latest legal battle, Dow Jones and the New York Post filed a lawsuit against AI start-up Perplexity, accusing it of copyright infringement.

In this article, I will consider how AI firms use publishers’ content, the core legal issues at stake, and the commercial awareness talking points for aspiring solicitors.

What is the accusation?

When large language models (LLMs) surged in popularity in late 2022, they raised significant legal and regulatory concerns, particularly regarding how they sourced the data, fuelling their responses. It became evident that many LLMs were trained using potentially copyrighted material.

This left publishers with two choices: monetise or litigate. They could either sign commercial agreements with AI companies to profit from their content or pursue legal action for copyright infringement.

Notably, Perplexity reached a revenue-sharing deal with some publishers, but those outside this Publisher Program have expressed concerns. Meanwhile, other AI giants like OpenAI and Google also face lawsuits over similar issues.

What is the legal basis in the Perplexity case?

There are several issues at stake here.

The publishers have accused Perplexity of copyright infringement, claiming the AI company is illegally copying and using their copyrighted content to train its models and generate responses. This practice, they argue, violates intellectual property rights.

Additionally, the lawsuit highlights concerns about revenue loss, as Perplexity’s AI-generated summaries allegedly divert users and advertising revenue away from the publishers. By offering free summaries that substitute for original news content, Perplexity is accused of “free-riding” on the publishers’ work without providing compensation.

The suit also raises the issue of false attribution and misinformation, stating that Perplexity’s system sometimes produces inaccurate summaries or falsely credits publishers, which could damage their reputation.

Lastly, the publishers argue that Perplexity is engaging in unfair competition by repurposing content without permission, gaining an advantage over traditional media companies that invest heavily in original reporting.

What is the likely outcome?

1. Licensing Agreement: In April, News Corp—the parent company of Dow Jones and the New York Post, which is now suing Perplexity—signed a deal with Google worth $5 to $6 million per year. This deal supports News Corp’s development of AI-related content and products. Such agreements provide a mutually beneficial solution: News Corp can monetise its content, while companies like Google (and potentially Perplexity) gain legal access to use it. However, the situation with Perplexity may be less amicable.
2. Settlement: News Corp may seek financial damages from Perplexity if a licensing agreement cannot be reached. The extent of these damages could be determined by the court, or the parties may opt for mediation or arbitration to resolve the issue more quickly and with fewer costs, minimising damage to both their reputations.
3. Litigation: Though less likely, if negotiations fail, the dispute could escalate to full litigation. In such a scenario, the case could go through the court system, potentially setting a significant legal precedent for AI content usage and copyright enforcement.

Commercial Awareness Takeaways

• Content Monetisation vs. Litigation: This case highlights a critical decision for companies whose content is being used by AI models—either negotiate commercial agreements to monetise their content or pursue litigation for copyright infringement. Litigation can be costly and lengthy, whereas licensing agreements may offer a quicker and more profitable resolution.
• Copyright/IP Issues: The case underscores the importance of understanding IP law in the digital age. Solicitors must advise businesses on how to protect their content and intellectual property rights, particularly in new technological contexts where AI models are involved in mass data scraping.
• Litigation and Risk Management: Both parties in this case face reputational risks—Perplexity for allegedly misusing copyrighted material and News Corp for engaging in high-profile litigation. Lawyers tend to advise clients on managing reputational risks and the advantages of alternative dispute resolution methods, such as mediation or arbitration, over prolonged litigation.

As this case unfolds, it may indicate how AI firms and publishers intend to navigate the delicate balance between innovation and intellectual property rights in the digital age.

• By Avishai Marcus

WOWCHER’S MIS-SELLING WOES

Wowcher is a diverse and promotional online marketplace that ‘provides customers with vouchers and savings on local businesses, travel, and consumer goods’. Wowcher’s annual revenue is estimated to be £68.6 million, proving it is a significant player in the online retail industry.

However, with great success comes great scrutiny by consumers and public bodies alike, leading to many formal complaints made by the former and the latter acting on it.

The Competition and Markets Authority (CMA) launched an investigation into the company in March 2023 following concerns that it was misleading consumers using its now infamous ‘countdown’ timers and several other allegedly questionable selling practices.

Some of these practices, so-called ‘dark patterns’, force customers into purchasing products or services they may otherwise not buy, and such mis-selling risks breaching, amongst other things, the UK Code of Non-broadcast Advertising Code (the CAP Code), the Enterprise Act 2002 (EA 2002), and the Consumer Protection from Unfair Trading Regulations 2008 (CPRs).

The investigation

The investigation was part of the CMA’s initiative to tackle ‘harmful online selling practices’ powered by similar findings in other companies, such as the Emma Group (Emma Matratzen GmbH, Emma Sleep GmbH and Emma Sleep UK Limited) and Simba Sleep.

It specifically focused on Wowcher because many of the products and services on the company’s website remained at prices similar to those on the website, even after the countdown timers had ended.

The concerns espoused by the CMA of Wowcher included:

• ‘urgency’ claims through its ‘countdown’ clocks – Their uses generated a sense of urgency amongst customers, thereby, in many ways, forcing customers to feel the need to make purchases that would otherwise not be made.
• Additional hidden charges and a pre-ticked box enrolling customers to VIP memberships, leading to additional, albeit unintended, purchases on their websites.
• Marketing and scarcity campaigns were deliberately unclear to customers and, therefore, potentially misleading.

The undertakings

For Wowcher to have avoided court action, they were to give undertakings to the CMA to include and not limited to:

Countdown timers

• The removal (not reinstatement) of their ‘deals refresh timer’.
• The use of any countdown timers on their retail platforms should not give the ‘false’ impression that customers ‘must act quickly to avoid missing out’, nor should they be ‘misleading’.
• Said timers must be clear and concise and specify which deals or promotions they apply to.
• The timers must operate so that the price is reserved for the customer when a product is added to the basket until the timer expires.

Marketing claims

• Wowcher was to remove all marketing campaigns that give the false impression that customers must act quickly or risk losing out or are otherwise misleading.
• All marketing campaigns must be prominent and clearly define limitations and qualifications.
• All marketing claims concerning any product or deal must accurately reflect the original and remaining stock levels. For any popularity claims, the sales, the rate and recency of Wowcher’s sales, and the popularity of the deal or product compared to similar over a specific but recent period must be readily available.

VIP membership

• The removal (not reinstatement) of the pre-ticked VIP membership service on its online platforms.
• On the offer of the VIP membership, Wowcher must gain the customer’s express consent (no later than seven days prior), further ensuring that the membership’s price, benefits, and duration are conspicuous and clearly expressed.

Refunds

• The CMA also stipulated that all customers affected by the pre-ticked VIP membership services be refunded with a credit equivalent to the price initially paid. The reasons for the refund, the choice of exchanging the credit for cash within 12 months of provision, and the deadline for withdrawing the credit as a cash alternative are all clearly outlined within 30 days of a specified date by the CMA.

Resulting action

On 19^th July 2024, the CMA announced that Wowcher had agreed to the undertakings, with a highlight of the agreement being that Wowcher will refund just 870,000 customers who were misleadingly signed up for the VIP membership as previously explained, to the tune of just over £4 million.

Moreover, Wowcher must prove its commitment to the undertakings by regularly reporting its compliance to the CMA over the next fiscal year.

Impact on the legal sector

Before the enactment of the Digital Markets, Competition and Consumers Act 2024 (DMCCA 2024), the CMA did not possess the legislative power to hold to account for businesses that were non-compliant under consumer legislation protection. Instead, they were bound by the process of courts to secure compliance orders without the power to issue fines.

Under the DMCCA 2024, the CMA has direct and autonomous legislative and enforcement powers against businesses at risk or who breach the relevant protection laws. Any appeals resulting from this direct imposition are considered only by the High Court.

Therefore, businesses engaging in unfair selling practices, such as the Emma Group, Simba Group, and Wowcher, must ensure they conform to new reform. Such reforms would need the expertise of consumer rights lawyers and corresponding firms to ensure said businesses are audit-compliant.

Steps that must be taken include corporates familiarising themselves with the requirements of the DMCCA 2024, thereby ensuring they adhere to the Act’s appliance to the different areas of their businesses.

There is also the prospect of increased litigation as the DMA clearly intends to use its enforcement powers to complete effects. Therefore, litigation lawyers and firms will almost certainly see an uptick in existing and new clients requiring their services.

All things considered, the DMA is seemingly on the warpath against businesses deliberately mis-selling to consumers in the hope of making quick profits.

Given the current economic climate and its effect on society in general, it is fair and justifiable that they are bestowed with such powers, which are also backed by championing consumer groups.

• By Aqua Koroma