Overview
The FTC just tore up its own rulebook. On December 22, 2025, the agency voted 2-0 to reverse a year-old enforcement action against Rytr, an AI writing tool accused of enabling fake reviews. The reason? The original case 'unduly burdens AI innovation' and violates Trump's AI Action Plan.
This marks the first time the FTC has revoked a settled AI case. It's also a stark signal of how quickly the Trump administration is dismantling the regulatory framework that Lina Khan spent four years building. The reversal goes beyond Rytr—it challenges the legal theory that companies can be held liable when they provide tools that customers might use to deceive consumers.
Key Indicators
People Involved
Organizations Involved
The FTC enforces consumer protection and antitrust laws.
Rytr provides an AI writing assistant that can generate various content types.
Timeline
-
FTC Reverses Rytr Enforcement
LegalFTC voted 2-0 to reopen and set aside Rytr order, citing Trump AI Action Plan. First AI settlement reversal.
-
Trump Signs State Preemption Order
Executive ActionExecutive order directing DOJ to challenge state AI laws, sparking legal threats from Colorado and California.
-
Trump Releases AI Action Plan
PolicyWhite House released America's AI Action Plan prioritizing deregulation, infrastructure, and US AI dominance.
-
Lina Khan Resigns
DepartureKhan resigned as FTC chair day after Trump inauguration, leaving agency split 2-2 on party lines.
-
Trump Inaugurated, Revokes Biden AI Order
Executive ActionOn his first day, Trump revoked Biden's AI executive order and designated Ferguson as FTC chair.
-
Rytr Consent Order Finalized
LegalFTC approved final order banning Rytr from providing AI services generating consumer reviews or testimonials.
-
Trump Names Ferguson FTC Chair
AppointmentPresident-elect Trump designated Andrew Ferguson, who dissented from Rytr case, as next FTC chairman.
-
Operation AI Comply Launched
EnforcementFTC announced enforcement sweep against five companies, including Rytr. Khan: 'There is no AI exemption from the laws on the books.'
-
FTC Bans Fake AI-Generated Reviews
RegulationAgency announced final rule prohibiting fake reviews and testimonials, including AI-generated content. Rule took effect October 21, 2024.
-
FTC Launches AI Investment Inquiry
InvestigationKhan's FTC announced inquiry into generative AI investments and partnerships involving major tech companies.
Scenarios
FTC Dismantles Khan's AI Enforcement Legacy
Discussed by: Legal analysts at Reed Smith, Gibson Dunn, and consumer protection advocates
The Rytr reversal is just the beginning. Ferguson systematically unwinds Khan-era AI cases, abandoning the 'means and instrumentalities' liability theory that held companies responsible when tools enable deception. The FTC's fake review rule remains on the books but goes largely unenforced. State attorneys general step into the void, creating the exact patchwork regulation Trump's executive order aimed to prevent. AI companies operate with minimal federal oversight while navigating conflicting state requirements.
Federal Courts Strike Down State AI Laws
Discussed by: Constitutional law experts, state officials warning of lawsuits
The DOJ's AI Litigation Task Force successfully challenges Colorado and California AI laws in federal court, establishing broad preemption doctrine. The Supreme Court, with its conservative majority, rules that AI regulation is exclusively federal domain. States lose ability to protect consumers from AI harms, leaving enforcement to an FTC that's already signaled reluctance to act. Silicon Valley gets the uniform regulatory framework it wanted: minimal restrictions, maximum innovation.
AI Consumer Harm Crisis Forces Reversal
Discussed by: Consumer advocates, some tech policy analysts at TechPolicy.Press
Deregulation unleashes wave of AI-enabled fraud. Fake review pollution becomes so severe that consumers can't trust online ratings. Deepfake scams proliferate. A high-profile AI-related consumer harm generates public outcry. Congress passes bipartisan AI consumer protection legislation that gives the FTC clear authority and mandatory enforcement requirements. Ferguson's FTC is forced to reverse course, but the new chair lacks Khan's aggressive instincts.
Industry Self-Regulation Fills Vacuum
Discussed by: Tech industry advocates, libertarian policy groups
With federal enforcement minimal and state laws preempted, major AI companies create industry standards to avoid worse regulation. Tech platforms like Amazon and Google crack down on AI-generated fake reviews to protect their marketplaces. Industry consortium develops authentication standards for AI content. Market forces and reputation concerns drive better behavior than regulation ever could, vindicating the deregulation approach.
Historical Context
Reagan Deregulation (1980s)
1981-1989What Happened
President Reagan launched aggressive deregulation agenda focused on economic efficiency. His administration successfully deregulated airlines, trucking, railroads, and oil and gas industries. However, efforts to roll back health and safety regulations faced legal obstacles and public backlash.
Outcome
Short term: Economic deregulation largely succeeded; social regulation rollbacks mostly failed in court.
Long term: Created legal precedent requiring same rigorous process to repeal rules as to create them, which ironically hampers Trump's deregulation efforts today.
Why It's Relevant
Trump's AI deregulation follows Reagan's playbook but faces similar obstacles. The Rytr reversal sidesteps court challenges by claiming the original case was legally flawed rather than defending deregulation on policy merits.
AT&T Consent Decree Modification (1982-1984)
1982-1984What Happened
The Justice Department and AT&T modified a 1956 consent decree, leading to the breakup of the Bell System. The modification fundamentally changed telecommunications regulation and split AT&T into regional companies. It showed consent decrees can be reopened, but typically requires mutual agreement and court approval.
Outcome
Short term: Bell System broken up into seven regional companies, transforming telecom industry.
Long term: Enabled competition and innovation in telecommunications; established precedent for major consent decree modifications.
Why It's Relevant
Demonstrates that consent decrees, while designed for finality, can be modified. But the AT&T case involved both parties agreeing to changes. The Rytr reversal is unusual because the FTC unilaterally determined its own complaint was flawed.
Trump First-Term Deregulation Record (2017-2021)
2017-2021What Happened
Trump's first administration promised historic deregulation but faced legal obstacles. Agencies attempted to repeal Obama-era rules but achieved less than 25% success rate in court because they failed to satisfy the demanding 'arbitrary and capricious' standard established in Reagan-era precedent. Deregulation rhetoric far exceeded actual results.
Outcome
Short term: Some high-profile regulatory rollbacks announced but many struck down by courts.
Long term: Demonstrated that administrative law constrains presidential deregulation power more than political rhetoric suggests.
Why It's Relevant
The Rytr reversal uses a different strategy than failed first-term approaches. Instead of defending deregulation on policy grounds, Ferguson claims the original Khan-era complaint was legally deficient. This may avoid the judicial scrutiny that doomed first-term rollbacks.