You Can’t Trademark a Lie: Why AI Startups Are Now FTC Targets
AI is the new asbestos. Everyone wants it in their product—until the lawsuits start.
Let me be clear: the FTC is not waiting for Congress to write AI-specific laws. They’re pulling out the old toolbox—Section 5 of the FTC Act—and wielding it like a sledgehammer against startups making big claims with little proof.
So if your company is bragging about AI-driven accuracy, fairness, compliance, or intelligence—and you can’t back that up with real evidence—you’re already on the enforcement radar.
Let’s talk about why that’s not just a consumer protection issue. It’s a brand risk, an IP risk, and a litigation time bomb.
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🚨 FTC to AI Startups: “Prove It or Pay”
You know that pitch deck slide that says “Our AI is 95% accurate”? Or the marketing copy that promises “bias-free results”? Or the investor one-pager with “proprietary algorithms” that haven’t actually been tested at scale?
Yeah, the FTC just turned those into federal liability.
Here’s what they’ve done just this year:
Cleo AI paid $17M for making false claims about its chatbot’s financial tools.
Workado was forced to retract its “98% accurate” AI content detector claim (turns out it was closer to 53%).
AccessiBe got hit for touting ADA compliance through AI, when its own users said the tool made websites less accessible.
No new laws. No AI-specific statute. Just the same boring Section 5 that’s been around since 1914: don’t lie in commerce.
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🧠 IP Implications: You Can’t Build a Brand on a False Claim
Let’s say your startup gets a cease-and-desist—or worse, a consent decree—from the FTC.
What happens to your IP?
Your trademarks tied to that product become radioactive.
Your marketing claims are now admissible as evidence of deception.
Your investor decks become discovery exhibits.
Your brand equity goes from asset to liability.
That’s not theoretical. I’ve had clients walk into fundraising rounds with trademarks they thought were valuable—until opposing counsel flagged the FTC press release and the term suddenly became a legal joke.
Here’s the real kicker: FTC action doesn’t just mean you can’t say the thing anymore. It means anyone else who relied on it—investors, customers, regulators—can sue.
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🔒 Trade Secrets ≠ Defense
You can’t just point at your AI and say “trust us, it works.”
The FTC doesn’t care how secret your model is. If you’re making a public claim about its performance, you need substantiation.
That means:
Benchmark data
Independent audits
Real-world performance metrics
Not “a few customers liked it” or “we ran a few internal tests.”
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🧨 The B2B Time Bomb: Your Customers Are Now Liability Vectors
If you sell AI-powered tools to other businesses—especially in regulated industries—your marketing claims aren’t just your problem anymore.
They’re your customer’s compliance risk.
That means:
You could be indemnifying their lawsuits.
You could get dragged into their enforcement actions.
You could blow up the deal you just signed—because the FTC doesn’t care if the misrepresentation was intentional or just optimistic.
And yes, this applies to:
Adtech tools claiming “brand-safe AI moderation”
Fintech apps promising “bias-free lending”
Medtech platforms using “clinical-grade” language
If you can’t prove it, don’t say it.
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🧬 What Smart Companies Are Doing Now
The ones playing to win are already:
✅ Scrubbing marketing copy for unsupported or questionable claims
✅ Filing evidence logs to back up every stat or superlative
✅ Renaming features to avoid implying capability that isn’t proven
✅ Inserting disclaimers where performance may be variable
✅ Tightening trademark filings to avoid committing to functionality that may evolve or degrade
You can’t claim “Bias-Free Lending” if your model hasn’t passed a third-party audit for fairness and disparate impact.
Call it “Risk Scoring Engine Based on Historical Loan Data.” It won’t win a branding award. But it won’t become Exhibit A in a federal complaint either.
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🔥 Final Thought: AI Hype Is Now a Liability
The FTC isn’t fighting AI. They’re fighting the gap between what you say your AI does and what it’s actually been proven to do.
And they’re winning.
You don’t need to burn your roadmap. You need to align it with your IP, your contracts, and your public claims.
Because once the FTC comes knocking, it’s not just your homepage copy that gets examined.
It’s your trademark filings. Your investor decks. Your GitHub history. Your product roadmap. Your customer onboarding flows.
This is the kind of legal work I do—building IP strategy that doesn’t just look good, but holds up when regulators and competitors start digging.
If you’re selling or investing in AI, and your legal foundation was built on vibes and hype, it’s time to lawyer up before the feds do it for you.
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