Internet AI Advertising Legal Difficulties

New Jersey Law Journal May 29, 2025

By Jonathan Bick Bick is counsel at Brach Eichler in Roseland, and chairman of the firm’s patent, intellectual property, and information technology group. He is also an adjunct professor at Pace and Rutgers Law Schools.

Advertising is increasingly targeted at specific consumers. Targeted advertising depends upon data about consumers that customizes the advertisement that consumers receive. AI use in advertising targets results in legal difficulties, primarily unlawful discrimination and privacy violations.

AI is increasingly important for internet advertisers. AI assisted internet advertising effectiveness has been proven as early as 2019. Automated software tools including AI are involved in most advertising purchases, over 90% by one estimate (See Hairong Li, Artificial Intelligence and Advertising, 48 J. ADVERT. 333).

AI algorithms, if not properly monitored, can perpetuate harmful stereotypes or discriminate against certain groups. Additionally, data privacy and security are major concerns, as AI heavily relies on consumer data for personalized experiences. There are also ethical questions about the use of AI to create content, especially in terms of intellectual property and the potential for generating harmful or misleading ads.

Targeted advertising assembles three types of user data, namely: that which consumers voluntarily share; that which is inherently shared by the user’s software or network; and that which an internet application actively gathers. The collected data is used by AI machine learning software to enable internet advertisers to employ generative AI software to generate content based on consumer characteristics and preferences resulting in statistically significant increases in advertising efficiently.

Currently, AI generated algorithmic models analyze consumer data to select ads for each specific internet user. Facebook, for example, uses AI machine learning models in combination with its own datasets and third-party datasets to deliver customized advertisement content based on individual internet user’s known or inferred preferences.

The laws governing targeted advertising in the United States are not unified. Not all laws governing targeted advertising apply to all advertisers, such as the prohibition on unfair or deceptive acts or practices under the Federal Trade Commission (FTC) Act (15 U.S.C. Section 45(a)(1)). Some are industry or medium-specific, such as the CAN-SPAM Act (15 U.S.C. Section 45(a)(1) Sections 7701 or FDA regulations 21 C.F.R. Section 202.1 (2024). Certain rules affect only specific types of content, such as material about political campaigns.

States have begun to regulate online advertising in the past few years, albeit indirectly via data privacy laws. At least 20 states now have consumer privacy regimes.

This first legal difficulty associated with AI internet advertising arises from data collection. The collection of data about individual internet users for the purpose of targeted advertising raises a violation of privacy concern.

AI relies on collecting and analyzing vast amounts of consumer data to personalize advertising and targeting. This raises concerns about privacy, data security, and the potential for unauthorized access or misuse of personal information.

In Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 HARV. L. REV. 193, 193 (1890), privacy was described as the “right to be let alone.” This concept has been memorialized by a combination of federal and state laws, with some laws specifically targeting specific internet transactions such as the Children’s Online Privacy Protection Act (COPPA), and FTC enforcement of privacy promises such as those disclosed in internet site terms of use agreements. State-level consumer data privacy statutes also prohibit the collection of data about individual internet users for the purpose of targeted advertising.

The next legal difficulty associated with AI internet advertising arise from AI algorithms. AI algorithms are trained on data, and if that data reflects biases, then AI will perpetuate those biases in its targeting and content generation.

AI can be used to create highly personalized and targeted ads, which can be manipulative and potentially harmful. This practice can lead to discriminatory targeting based on factors like race, gender, or socioeconomic status.

For example, internet targeting advertising for a national hotel chain that specifically sought to exclude consumers with a particular racial or ethnic background due to sub-optimal AI algorithms would violate federal anti-discrimination laws. See for example, 42 U.S.C. Section 2000a, a part of the Civil Rights Act of 1964, prohibits discrimination or segregation in places of public accommodation. Individuals may also be able to recover damages for their injuries, including emotional distress, lost wages, and other costs.

Discriminatory targeting based on race, gender, or socioeconomic status is illegal under various federal and state laws. Federal statutes are in place to address such bad acts. These laws include Title VII of the Civil Rights Act of 1964, the Fair Housing Act, and the Equal Pay Act. State laws typically mirror federal protections and may also include additional protections.

Another legal difficulty associated with AI internet advertising arises from internet terms of use agreement violations. The use of targeted advertisements are not unlawful.

However, the FTC found that targeted advertisements based on data collected after promising not to use said data in advertisements is a deceptive trade practice. The FTC enforces Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” Consider In re BetterHelp, (2023) (No. C-4796) for example. BetterHelp collected information from millions of consumers including their health histories, e-mail addresses, and intake questionnaires to match users seeking therapy with treatment providers.

In the BetterHelp matter, the company repeatedly pressured consumers to disclose this information on its internet sites, reassuring them at each step that the information would be kept private and would not be used for advertising. However, BetterHelp used these consumers’ sensitive data to target ads to users of Facebook, Pinterest, Snapchat, and other social media platforms, including by transferring the data to these companies.

Yet another difficulty associated with AI internet advertising arises from the requirement that AI needs stored data. More specifically, internet advertisers must store at least some consumer data to engage in targeted advertising.

Such stored data creates a legal difficulty related to harm occurring from breaches, whether accidental or deliberate. Breaches of data stores containing consumer information are commonplace and the legal difficulties for the data holders may be significant. See for example, Chuck Brooks, Cybersecurity Trends & Statistics for 2023; What You Need to Know, Forbes (Mar. 14, 2023). Thus, AI internet advertising entities are likely to be involved in litigation due to data breaches.

Internet advertisers who use AI are legally liable for consumer data breaches if they fail to implement adequate security measures. This liability can lead to lawsuits from customers. If an entity is found to have acted negligently in protecting data, they may be held accountable for any losses suffered by affected parties.

More specifically, potential liabilities may include lawsuits, class actions and civil penalties. Affected consumers can sue AI internet advertisers for negligence and damages, including financial losses, emotional distress, and reputational harm. Groups of affected consumers can join in a class action lawsuit, potentially leading to larger settlements or judgments. State and federal laws may impose fines and penalties for data breach violations.