'Competing Legal Futures – “Commodification Bets” All the Way From Personal Data to AI' by Marco Giraudo, Eduard Fosch-Villaronga and Gianclaudio Malgieri in (2024) German Law Journal comments
Waves of technological innovations based on AI fuel narratives of unprecedented economic and social progress in every possible imaginable field: from healthcare to retail, from the stock market to marketing and advertising, from farming to sports. The novelty of AI tools makes their related impact on society unknown or difficult to be known, as it is often masked under a veil of extreme short term efficiency bearing on the stability of their legal foundations. At the same time, forms of folie normative (or regulatory madness) and the adoption of countless resolutions, ethical guidelines, standards, and laws—often contradictory—and unclear, further blur the visibility over the legal robustness of the foundations of AI-powered business. It is unsurprising therefore that AI tools are marketed in a context of legal uncertainty oftentimes through the use of innovative contractual solutions to secure legal entitlements to perform such new activities and attract further investments in these newly emerging markets.
Over time, such technological waves are often accompanied by legal shockwaves arising from formal and substantive conflicts between claimed legal entitlements to market new products and counterclaims to protect the prevailing legal order. Many times, the exaggerated expectations of the legal sustainability of innovative solutions that accompany the commercial release of new products are contradicted by widespread recognition of adverse effects in terms of fundamental rights and democratic order, as well as other constitutionally protected interests. As a result, some AI products are already being rejected outright, either by the intervention of law enforcement agencies or by judicial pronouncements retroactively declaring them unlawful. For example, facial recognition technologies or AI-based virtual friendship services have been banned in some jurisdictions by the courts and likely confirmed by legislative action.
In economic terms, many investors may soon face significant losses as a result of the outright prohibition of markets that they had imagined to be “legal” and whose legal foundations eventually “disappear” because they are found to be incompatible with some fundamental rights and democratic public order. Yet, many investors and policymakers seem unconcerned about the potential economic and political consequences of increasing uncertainty about the stability of the legal foundations of AI-based products, as if the legal rules announced by courts or enforcement decisions by specialized agencies in the EU or the FTC in the U.S. do not affect the economic value of new activities and services. Such disregard for the legal dynamics and increasing inalienability of the entitlements being traded is in striking contrast to what would be expected of investors faced with such profound fluctuations in legal uncertainty within an industry.
All the more so when we consider the lack of learning from similar legal-economic patterns that have been playing out for more than a decade in the context of the first phase of information capitalism, whose legal foundations are currently in a stalemate. For a long time now, economic actors have been unfettered by faltering legal claims to commodify personal data, the “new currency of the Internet.” Even there, despite widespread warnings about the legal dangers of “everydayness as a commercialization strategy,” we have witnessed a sustained flow of investment into an industry whose core resource has long been suspected of not qualifying as a “commodity.” Today, the entire industry is hanging by a thread, riding on what appears to be a cluster of “legal bubbles,” as legal support for the commodification of personal data diminishes and surveillance practices become increasingly costly, if not prohibited. And yet, with no apparent rational explanation, the very same private actors whose behavioral commodification bets are in jeopardy are the ones raising the stakes with AI gambles to even higher levels of magnitude, with an inadequate response from rule makers and enforcers. If history is any guide, the recent anomalous economic inaction in the face of legal dynamism portends legal instability ‘on steroids’ for the AI-based industry.
In this Article, we provide a legal-economic canvas of these institutional co-evolutionary dynamics shattering the legal foundations of the digital markets to make sense of contested commodification bets all the way from personal data to AI. From the experience of the early phase of information capitalisms and current flares up of legal uncertainty in the face of AI powered services, we articulate theoretical insights concerning anomalous coordination between legal, technological, and economic dynamics as amplified by overreliance on co-regulatory strategies proposed by current regulatory actions for example, the European AI Act proposal, as a solution of the “pacing problem,” when do we regulate technology. In this spirit, we elaborate on the growing literature on the legal fragility of the market for personal data and AI-based services and connect it with reflections on economic anomalies in the ‘market for legal rules’, which is increasingly supported by judicial evidence and litigation.
We argue that the co-regulatory model exacerbates legal instability in emerging markets also because it is subject to moral hazard dynamics, all too favored by an over-reliance on the goodwill of private actors as well as on the enforcement priorities of Member States’ DPAs. Stalling strategies and opportunistic litigation can flourish within such a model to the advantage of economic agents’ commodification bets, thus prolonging what we call the “extended legal present,” in which a plurality of possible legal futures compete with each other, and which is fraught with economic and political uncertainty.
In particular, different legal futures also map onto complementary economic futures, as they affect the legal existence and the cost structure of markets for these new “exemplary goods.” During such a period, economic agents have to “bet” on one legal future to ground their business models, with no guarantees of legal success. We call this phenomenon competing legal futures, which can fuel dangerous legal bubbles if not properly identified and addressed, due to the overlooked instability of legal entitlements at the core of innovative business models. At the same time, legal dissonances and tensions between innovative legal practices and the prevailing institutional order may lead to geopolitical tensions or internal constitutional crisis.
Against this background, we articulate a common intellectual framework for thinking in the face of the current legal-economic waves of uncertainty affecting AI and other digital innovations, likely to be amplified by political negotiations and compromises leading to the final text of the so called Artificial Intelligence Act (AIA). The AIA is posed to be the first regulatory framework that addresses the impacts that AI has for society, laying down the rules for developers building these systems and user rights. This proposed piece of legislation relies heavily on private standardization activities, also named as co-regulation. The presence of co-evolutionary legal, economic and technological dynamics at the frontier of innovation requires a comparative and interdisciplinary approach, and so we propose a series of “neologisms” as conceptual experiments for the holistic study of complex social objects. Although the Article mainly refers to European events as a case study, their theoretical and practical implications are by no means limited to the EU legal-economic area for the well-known “Brussel effect,” nor are the theoretical insights we draw from them. The Article continues as follows. The first part briefly recounts how the foundational commodification bets on which the digital economy has been deployed and partly rejected by the EU judiciary and DPA’s, pointing to the poor adaptation of economic agents’ legal practices despite emerging legal fault lines at the core of the European digital markets. It then outlines the sense of dejà vu in making the legal foundations for AI, which are currently being shaken by flares of legal uncertainty as the commercial release of AI-based products unfolds. The second part sketches out a theoretical framework of the functioning of the “market for legal rules” to navigate uncertain legal futures. It also emphasizes the presence of anomalies and distortions typically associated with market exchanges at large, as they are exacerbated by the institutional functioning of the co-regulatory model. It concludes by calling for a course correction in the over-reliance on co-regulation and proposes a number of strategies as a resilient strategy for the governance of legal innovation in the face of legal uncertainty.