Law & Order & AI – How Californias Bill SB1047 will impact AI development in the USA

27

September

2024

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The USA are often praised for their openness to innovation, while the EU is seen as lagging behind. But there is one aspect where the USA are now following the EU: AI regulation. In this blogpost I will discuss the Californian Bill “SB 1047: Safe and Secure Innovation for Frontier Artificial Intelligence Models Act” which currently awaits ratification by the Governor of California. (California Legislative Information, 2024)

While not yet enacted, the EU has created one of the most far reaching efforts in the world to regulate AI with the Artificial Intelligence Act (AI Act). As we had discussed in class the AI Act focusses on different aspects such as a risk-based framework, accountability and transparency, governance, and human rights. (European Parliament, 2023)

How does the SB 1047 compare? First off, it is important to note that the Bill would only be turned into law in California. Nonetheless, this more or less means a nationwide application since most affected companies are based in Silicon Valley, California.

SB 1047 focusses on a few different aspects, I have highlighted the ones I think are most far reaching:

  1. Developers must implement controls to prevent the model from causing “critical harm”
  2. Developers must provide a written and separate safety and security protocol
  3. Developers must include a “kill switch” through which a full shutdown can be enacted
  4. Developers will have to have their models be tested, assessed, and regularly audited. (Gibson Dunn, 2024)

Like the AI Act, SB 1047 would focus on high-risk, high-impact AI models, while focusing on safety and security of the people impacted by AI.

But why would you care? Will this even affect everyday people? Isn’t this just stifling innovation and risking loss of competitive advantage?
Before you jump to the comments let me first highlight one of the bills supporters – Elon Musk. On his platform X, Musk has posted about his support for the bill, stating that AI should be regulated like “any product/technology that is a potential risk to the public” (Tan, 2024) I don’t often align with Musk’s views, but I really agree with this stance on regulation!

Screenshot of Musks Tweet suppporting the SB1047 bill.

Why should we let AI and its development stay completely unchecked but still use it for vital parts of our daily life? Why should we not want to know how AI works beneath the engine? Time and time again, history has taught us that leaving big systems unchecked because they were deemed “too complex” or because we trusted the people who run them to do so in the best interest of the public, does not always lead to the desired outcomes.
From job applications, health, safety, to privacy we already use AI in most aspects of life. I, for one, do not want these parts of my life to be guided by the ethics (or maybe lack thereof) of individuals. I want there to be clear legislature and a framework in place to guide the future development of AI. Because even though most people might not clearly see how their life is (beneficially) impacted by AI currently, I don’t want anyone to ever experience how AI might detrimentally impact their life.


Resources used:

California Legislative Information. (2024, September 3). Senate Bill No. 1047: Safe and Secure Innovation for Frontier Artificial Intelligence Models Act. California Legislature. https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB1047

European Parliament. (2023, June 1). EU AI Act: First regulation on artificial intelligence. European Parliament News. https://www.europarl.europa.eu/topics/en/article/20230601STO93804/eu-ai-act-first-regulation-on-artificial-intelligence

Gibson Dunn (2024, September 24). Regulating the Future: Eight Key Takeaways from California’s SB 1047, Pending with Governor Newsom. Gibson Dunn. https://www.gibsondunn.com/regulating-the-future-eight-key-takeaways-from-california-sb-1047-pending-with-governor-newsom/

Musk, E. [@elonmusk]. (2024, September 15). AI should be regulated like any product/technology that is a potential risk to the public [Tweet]. Twitter. https://x.com/elonmusk/status/1828205685386936567?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1828205685386936567%7Ctwgr%5Eb0d709a708c02735de6f79bae39d6c06261b27d9%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fwww.businessinsider.nl%2Felon-musk-says-hes-backing-californias-controversial-ai-bill%2F

Tan, K. W. K. (2024, 27 augustus). Elon Musk says he’s backing California’s controversial AI bill. Business Insider Nederland. https://www.businessinsider.nl/elon-musk-says-hes-backing-californias-controversial-ai-bill/

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This is why there is a new European law for platforms

28

September

2022

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There are 2 new laws proposed by the European Commission revolving digital services in the European Union. These laws are the Digital Services Act (DSA) and the Digital Markets Act (DMA) (The Digital Services Act package, 2022). But why did the European Commission planned new laws? In this part, the digital services act will be discussed. The evolving environment and fundamental rights of the users are important when considering the effect of platforms.

Digitization and platforms are becoming more important in the daily lives of individuals. Individuals use platforms for shopping, communication and many other purposes. For users, higher transparency, pricing and better content are some of the benefits of digitization of various services. However, these emerging trends are not all coming up roses. Individuals can also be exposed to some issues that come with digitization. Examples are illegal trade, limitations on self-expression or discrimination. Because these issues are in contradiction with the Universal Declaration of Human Rights (the same principle for which the GDPR is also developed), a new law is proposed to protect individuals, the Digital Services Act. By this law, platform owners obtain more responsibility for the content on the platform. The DSA requires organisations to have the right procedures at hand in order to deal with illegal content, such as fake news. An important note is that various “categories” of organisations revolving digital services or platforms have additional obligations. In order form the least obligations to most obligations, the categories of platforms are as follows: provider of intermediary services, hosting, online platforms and “very large online platforms” (Digital Services Act, 2021; PricewaterhouseCoopers, n.d.). An example of additional obligations is to allow conducting of external audits by authorities and crisis response. Moreover, the firms could be forced to share or be transparent about the algorithms used in advertising or recommendations systems. This creates more transparency for the users regarding online advertising.

To conclude, the Digital Service Act is developed for the increased risk of individuals online and on online platforms. The new law requires firms, dependent on their category, to implement processes to deal with illegal content and be transparent about algorithms and decision making.

In the opinion of the author, the new law will have an impact, but in small extent. The predicted trend of these new laws is similar to the GDPR. According to the GDPR, organisations may not process personal data unless an individual checks a box, which is often done without hesitation. The transparency of algorithms could be impactful, however most individuals are probably not focused on these decision-making processes. However, the GDPR did increase the recognized interest of privacy of European citizens. The DSA has the same opportunity regarding the risks of platforms and digitization and the increased power some platforms obtain in our daily lives.  

References

The Digital Services Act package. (2022, July 5). Shaping Europe’s Digital Future. Retrieved 27 September 2022, from https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package

Ministerie van Economische Zaken en Klimaat. (2021, November 25). EU-ministers akkoord met regelgeving voor digitale diensten en markten. Nieuwsbericht | Rijksoverheid.nl. Retrieved 27 September 2022, from https://www.rijksoverheid.nl/actueel/nieuws/2021/11/24/eu-ministers-akkoord-met-regelgeving-digitale-diensten-en–markten

PricewaterhouseCoopers. (n.d.). Grondige herziening van regels voor onlineplatforms. PwC. Retrieved 28 September 2022, from https://www.pwc.nl/nl/actueel-en-publicaties/themas/digitalisering/grondige-herziening-van-regels-voor-onlineplatforms.html

Digital Services Act, (2021). https://eur-lex.europa.eu/legal-content/en/TXT/?uri=COM%3A2020%3A825%3AFIN

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Are Antitrust Laws Fit to Fight Tech Giants from Killing Tradition Businesses?

18

September

2019

No ratings yet. Are today’s antitrust laws fit for the new business models? Major tech giants, such as Facebook, Amazon, and Apple have been the subject of several antitrust investigations. The list of fines resulting from these investigations are ranging from a €110 million fine for Facebook due to misleading information about the WhatsApp takeover (European Commission, 2017), to a $4.34 billion fine on Google for misusing Android software to hold off competition (D’Onfro, 2018). U.S. Lawmakers are hence urging ‘aggressive action’ from regulators on the big tech giants (McCabe, 2019).

In order to understand what has changed in recent years’ business models, let us make a comparison between Amazon and a traditional supermarket. Supermarkets, equal to other forms of retailing, have lower profit margins compared to other industries, on average ranging from 0.5% to 3.5%. That is why supermarkets, such as Wal-Mart, are focused on gaining a high sales volume (Ross, 2019). Amazon, on the contrary, has a staggering $141.3 billion in international sales via its web shop with an operating income of $7.2 billion, nearly 5% profit margin. Although this profit margin is slightly higher than the retailers average, 5% profit margin is nothing to panic about. However, Amazon also has another operation namely, Amazon Web Service (AWS). AWS has grown to a $26 billion revenue in 2018, with an operating income of $7.3 billion, creating a 28% profit margin on its webservice (Frankenfield, 2019). Consequently, while supermarkets are struggling with their 0.5% to 3.5% profit margin, AWS makes a 28% profit margin. This $7.3 billion can be used by amazon to finance its other operations, such as retailing, while Wal-Mart needs to make money solely on its retail operations. Amazon is now competing with Wal-Mart with its Amazon Go operations, a supermarket chain without any checkouts. The difference is, however, Wal-Mart needs to make a profit to survive, while Amazon Go does not. They could potentially lower their prices without risking the future of their business, but would they do that?

The answer is yes. As an example, diapers.com has been the victim of a price war with Amazon rapidly lowering its prices on Amazon’s diapers. This price war resulted from diapers.com refusing a takeover bit made by Jeff Bezos, CEO of Amazon. Diapers.com was forced to sell its diapers at a loss (Lecher, 2019). What might look as predatory pricing, which is anti-competitive, misses one component: Amazon does not have to increase its prices after their competitors went out of business. That is why Amazon can perform this strategy without too many troubles, caused by market watchdogs. According to Baumol (1979), companies are not allowed to increase its prices within a five-year period after their competitors run out of business. Subsequently, businesses would be discouraged to commit in any form of predatory pricing. Nevertheless, since Amazon can finance this pricing strategy with its other operations, such as AWS, they can play the long game. The Federal Trade Commission (FTC), responsible for fighting antitrust, is therefore having a hard time prosecuting big tech giants with this ‘new’ business model for predatory pricing.

Should we thus change the rules of the game regarding antitrust to give market watchdogs, such as the FTC, more tools to prevent antitrust breaches. As Khan (2016) stated: “this Note argues that the current framework in antitrust – specifically its pegging competition to “consumer welfare,” defined as short-term price effects – is unequipped to capture the architecture of market power in the modern economy.” The so called: Antitrust Paradox, requires antitrust laws to increasingly secure the economies welfare over the short-term consumer welfare. If lawmakers do not act now, we might end up with Amazon Go being America’s only supermarket.

 

References

Baumol, W.J., 1979. Quasi-permanence of price reductions: A policy for prevention of predatory pricing. The Yale Law Journal89(1), pp.1-26.

Khan, L.M., 2016. Amazon’s antitrust paradox. Yale LJ126, p.710.

 

*All websites were viewed on 18 September 2019.

D’Onfro, J. 2018: https://www.cnbc.com/2018/07/18/googles-5-billion-fine-what-you-need-to-know.html

European Commission, 2017: https://europa.eu/rapid/press-release_IP-17-1369_en.htm

Frankenfield, J. 2019: https://www.investopedia.com/how-amazon-makes-money-4587523

Lecher, C. 2019: https://www.theverge.com/2019/5/13/18563379/amazon-predatory-pricing-antitrust-law

McCabe, D. 2019: https://www.nytimes.com/2019/09/17/technology/senate-antitrust-tech-hearing.html

Ross, S. 2019: https://www.investopedia.com/ask/answers/071615/what-profit-margin-usual-company-retail-sector.asp

 

 

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