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Reddit under FTC scrutiny for AI data licensing practices!

reddit, financial news

Reddit, a prominent technology platform, has recently come under the scrutiny of the U.S. Federal Trade Commission (FTC). This attention is due to Reddit's practices involving the licensing of user-generated data to various artificial intelligence (AI) companies.

This situation came to light following a filing by Reddit with the Securities and Exchange Commission (SEC) on a Friday afternoon. The company was informed of this investigation just the day before, on Thursday.

In their SEC filing, Reddit detailed the nature of the FTC's inquiry. The communication from the FTC, received on March 14, 2024, indicated that the commission is conducting a confidential investigation into Reddit's activities. Specifically, the FTC is examining the company's methods of selling, licensing, or sharing user-generated content with third parties.

These third parties are using this content to train their AI models. Reddit recognizes the uniqueness of these technological and commercial practices and is not taken aback by the FTC's interest in these areas.

Despite this, Reddit asserts that it has adhered to fair practices and has not engaged in any deceptive or unfair trade practices. The FTC's letter expresses a desire to understand more about Reddit's business operations and indicates plans to request additional information and documents from Reddit as the investigation continues. This development was reported by news agencies like Reuters.

Reddit's recent filing of its Form S-1 with the SEC is a crucial step towards its anticipated initial public offering (IPO). This filing disclosed several critical details about the company, including the fact that Sam Altman, CEO of OpenAI, holds a significant stake in Reddit (approximately 9%).

Additionally, the filing emphasized Reddit's focus on generating revenue from generative AI training. This includes a notable $203 million agreement, which is believed to involve Google. In the filing, Reddit stressed the importance of its content for the development of AI, particularly for training large language models (LLMs).

Reddit highlighted the dynamic and continuous growth of its user data, pointing out how this makes it a valuable resource for AI development. The company envisions itself as providing solutions that are both data-driven and human-centric, and it anticipates that its data and intellectual property will continue to play a crucial role in future LLM training.

In light of the FTC's ongoing investigation, Reddit has updated its risk factors in its SEC filing. The company acknowledges that regulatory inquiries can be prolonged and unpredictable. They can lead to significant expenses, reputational harm, monetary fines, or necessitate changes to Reddit's products, services, or business practices.

These regulatory processes might force Reddit to modify its operations, diverting management and other resources from its core business activities. Such engagements could have adverse effects on Reddit's business, operational results, financial condition, and future prospects.

The issue of data licensing for generative AI models has garnered widespread interest, particularly in sectors like entertainment. In Hollywood, for instance, the potential use of film and photo archives is being explored for the development of advanced video and photo models.

Similarly, in the news industry, real-time data is becoming increasingly valuable for LLMs that need to stay updated with current events. This trend underscores the growing importance of diverse data sources in the evolving landscape of AI technology.



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