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Make no mistake: Artificial Intelligence (AI) is in its hype cycle at the moment.

The global AI market is valued at over $196 billion, and it's projected to increase over 13-fold in the next seven years. Reports claim that startups mentioning "AI" attract 15-50% more investment than other contenders.

Unsurprisingly, the allure of being part of the AI gold rush is irresistible, and businesses are racing to adopt AI to stay ahead of the curve.

Yet, not all that glitters is gold. To attract investors and customers, many companies are capitalizing on the AI hype and making dubious claims about their AI capabilities. That kind of deception is not just unethical, it's harmful: It misleads consumers, distorts the market, and erodes trust in AI technology and genuine AI innovations.

What Is AI-Washing?

AI-washing is a marketing strategy involving misleading and deceptive behavior, typically in the form of false or exaggerated claims about the use of AI or algorithmic systems in the business or its products or services.

The claims may be made using words, visuals, omissions, and symbolic action.

Unlike greenwashing, AI-washing is more difficult to detect because the exact functionality of AI remains largely opaque and unknown to most people, including experts.

Furthermore, the nature of the underlying algorithms and programs is fluid, making it difficult to follow the trail of misleading behavior.

AI-washing can take various forms:

  • Misleading product descriptions. For instance, labeling traditional algorithms as AI-powered is a form of AI-washing. Amazon's Just Walk Out program is a prime example. Promoted as a revolutionary AI-driven system, it was eventually revealed to be managed by workers in India in real-time.

  • Exaggerating the scale of AI capabilities. This trend appears to be rampant in the market as many businesses are claiming to provide products or services that are AI-driven or AI-powered.

    For example, the US Securities and Exchange Commission (SEC) recently found that Global Predictions, a San Francisco-based fintech firm, had made false and misleading claims in 2023 on its website and social media about its purported use of AI. The firm falsely claimed to be the "first regulated AI financial advisor" and misrepresented that its platform provided "expert AI-driven forecasts."

    The SEC and the Department of Justice (DOJ) have both stressed the need for honesty and transparency in AI marketing.

  • Claiming to use AI without any substantial implementation. Considering the AI hype, businesses are unsurprisingly claiming AI integration in their processes and models to secure funding, even if their use of AI is negligible or in the early stages of development.

Why Is AI-Washing Dangerous?

AI-washing has various consequences:

  • Customer deception. The most immediate and obvious risk of AI-washing is deception, particularly because of the complexity and opacity of AI systems. If companies misrepresent their use of AI, buyers may make purchasing decisions based on false and misleading information.
  • Market distortion. AI-washing negatively impacts businesses that are genuinely investing in and developing AI technologies. Such businesses could struggle to compete with those that falsely claim AI capabilities if customers and investments are diverted toward companies engaging in AI-washing.
  • Regulatory and legal challenges. As AI-washing increases, regulatory bodies are becoming more vigilant. False AI claims can lead to legal repercussions, including fines and sanctions. Companies must navigate complex regulatory landscapes, ensuring their AI claims are accurate and substantiated to avoid legal pitfalls.
  • Loss of trust. Trust is critical to the successful adoption of a new technology. AI has yet to garner mass trust. AI-washing risks eroding trust in AI among consumers, investors, and other stakeholders. If stakeholders consistently encounter overhyped and underdelivering AI products, skepticism toward genuine AI advancements will grow, potentially slowing down the adoption of beneficial AI technologies.

How to Combat AI-washing

AI-washing is in its initial stages, and we need to act quickly before it becomes rampant and undermines stakeholder trust and market integrity.

Although regulation and enforcement are a crucial part of the fight against AI-washing, they alone will not resolve the issue. The following measures can help combat AI-washing.

Transparency and Honesty When Using AI Buzzwords

Companies should prioritize transparency and honesty in their marketing strategies.

Clearly defining what constitutes AI in their products, providing evidence of AI implementation, and setting realistic expectations can help build trust and credibility. Fully 62% of consumers would trust a company more if it is transparent about its use of AI, a study by Deloitte found.

Clearly, companies that adopt honest marketing practices and invest in genuine AI innovation will not only build trust but also contribute to the sustainable growth of the AI ecosystem.

Education and Awareness

More than half of Australians (57%) have zero or slight knowledge of AI, while almost two-thirds (63%) have zero or slight understanding of when AI is being used, according to a survey undertaken by the Australian Public Service (APS). Increasing those numbers is crucial.

Educating consumers and stakeholders about AI technologies can empower them to make informed decisions. Understanding the differences between genuine AI solutions and AI-washing tactics would enable consumers to critically evaluate product claims.

Consumers of AI products should ask hard questions, including how the AI functions, what it does, what data sets have been used for training, and what, if any, automated decision-making is being used.

Regulatory Oversight

By cracking down on misleading AI claims in the US, the SEC and DOJ have sent a clear message: Play fair or face the consequences. There is talk in the Australian industry that the Australian Securities & Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) will also begin taking a stronger stand against AI-washing, including issuing fines.

We need clear guidelines and standards for AI claims. Implementing stringent verification processes and penalties for false claims can deter companies from engaging in AI-washing. Collaboration among international regulatory bodies is also important to ensure consistent standards across borders.

Industry Standards and Certifications

Developing industry standards and certifications for AI technologies can provide benchmarks for evaluating AI claims. Certification bodies can assess and verify the AI capabilities of products, offering consumers and stakeholders a trusted mark of authenticity.

AI-Washing Is a Legitimate Issue

AI-washing poses a serious risk to consumers, market dynamics, and the future of AI development. To counter AI-washing, we need a holistic strategy that fosters transparency, education, regulatory oversight, and industry standards.

If you are a business seeking to market your AI capabilities, be clear and specific about the form, scope, and functionality of AI in your products or services.

If you have any questions or concerns, seek legal guidance today.

More Resources on Ethical Marketing Practices

Why Honesty and Integrity Pay: The Benefits of Truth-Based Marketing

Ethical Marketing Practices for Businesses of All Sizes

A Guide to Business Ethics and Social Responsibility [Infographic]

The Value Chain: From Building Brand to Building Integrity

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image of Aparna Watal

Aparna Watal is an intellectual property (IP) lawyer and trademarks partner at Halfords IP in Australia and New Zealand. She has a keen interest in the intersection of AI and IP.

LinkedIn: Aparna Watal