November 2025

The Precarious Issue of Legally Creating Mashups Under the U.S. Patent System

November 24, 2025
Entertainment Law, Intellectual Property, Patents

McKenzie Alders, JLST Staffer

Ever wondered how your favorite DJs can legally incorporate those familiar beats and 2010 tunes into their own, new mashups? Apparently, the answer is not actually all that clear.

Copyright protection under federal law automatically applies to creative work once the work is fixed to something tangible.[1] Copyright law provides two protections for music: musical compositions and the recordings of those compositions.[2] Generally, this copyright grants the creator of the work an exclusive right to sell, make copies, and publicly perform the work for the life of the creator plus an additional 70 years.[3] Perhaps the best route for those who wish to use snippets of others’ works to create something uniquely their own is to obtain a license from each artist whose work they plan to use.[4] However, the licensing process is time-consuming, and, particularly for artists who will be using many short snippets of songs, this would be extremely expensive.[5] While this expense might be bearable by those who are at the top of the industry, it could have the effect of pricing out those hobby DJs or new talent looking to make their own name in the profession.

Thus, the question is raised: in lieu of obtaining a license, what options exist for those who wish to mash up the music of others? Historically, there have been two defenses available to those who would use small samples of another’s copyrighted material: de minimis and Fair Use.

 

Circuit Split Over the Use of the De Minimis Use Defense

In Bridgeport Music, Inc. v. Dimension Films, the Sixth Circuit held that, “A sound recording owner has the exclusive right to ‘sample’ [their] own recording . . . . Get a license or do not sample. We do not see this as stifling creativity in any significant way.”[6] In Bridgeport, various record companies brought copyright infringement claims against No Limit Films for their use of a sample from a composition and sound recording in a rap song, which was included in one of their movies.[7] The district court held that the infringement claim was de minimis and not actionable.[8] In reversing the district court’s holding in this case, the Sixth Circuit not only held that sampling was per se not permitted, but they made this holding extremely broad by doing so in a case where it had initially been held that the infringement claim was de minimis. Hence, at least in the Sixth Circuit, there is no defense to copyright infringement that the size of the sample was de minimis, and as such, a license is required to create a mashup.

In contrast, in Newton v. Diamond, the Ninth Circuit held that, after considering the facts and circumstances, the sampled portion of the composition was not a “quantitatively or qualitatively significant portion of the composition as a whole.”[9] Here, the copyright infringement claim arose out of the use of the recording of a live performance of a flutist that was then used in the Beastie Boys song “Pass the Mic.”[10] The Beastie Boys obtained a license to use the sound recording that was sampled, but not the underlying composition.[11] Thus, a claim for copyright infringement was brought due to the use of the underlying composition.[12] Quantitatively, the allegedly infringed upon sample represented six seconds or two percent of a four and a half minute recording, and the Ninth Circuit found that qualitatively the section of the work was no more significant than any other section.[13]

 

Since Newton, the Ninth Circuit has only made clearer its opposition to the holding in Bridgeport. In VMG Salsoul v. Ciccone, the Ninth Circuit explicitly disagreed with the Sixth Circuit by stating, “Congress did not eliminate the de minimis exception to claims alleging infringement of a sound recording.”[14] In VMG Salsoul, a claim of copyright infringement was brought against Madonna for the use of a portion of the song, Love Break, in her song Vogue.[15] The Ninth Circuit court held that, as a matter of law, “a general audience would not recognize the brief snippet in Vogue as originating from Love Break” and so any copying that was de minimis and did not amount to copyright infringement.[16] Therefore, the Ninth Circuit chose to preserve the de minimis defense that the Sixth Circuit had dismissed.

As a consequence of this circuit split, it is very hard to predict how a court will actually apply copyright law and the de minimis use defense to those who would create mashups without a use license for each of the songs that they choose to sample. Practically, in Sixth Circuit jurisdictional areas, sampling without a license should not be done at all. While the Ninth Circuit previously permitted sampling without a license under de minimis use, without a categorical rule, the application to the facts of any specific case makes it difficult to predict what the courts would rule.

 

Fair Use Defense

The fair use protections found in U.S.C. § 107 provide another avenue for artists looking to utilize another’s work. If a sample is deemed to be a fair use of another’s work, it is not considered copyright infringement.[17] Courts consider application of the U.S. Code Fair Use protection on a case by case basis, and the analysis utilizes four statutory factors: (1) the purpose and character of the of the use, focusing on “to what extent the new work is transformative” because it gives the original work something new; (2) “the nature of the copyrighted work”; (3) “whether ‘the amount and substantiality of the portion used in relation to the copyrights work as a whole’ are reasonable in relation to the copyright’s purpose”; (4) “the effect of the use upon the potential market for or value of the copyrighted work.”[18] In Campbell v. Acuff-Rose Music, Inc., the Supreme Court held that a commercial parody, essentially transforming another person’s work but maintaining the underpinnings of it so the original work remains recognizable for comedic purposes, can be considered Fair Use under the meaning of Section 107.[19]

In Campbell, the Court found that parodies utilize the underlying work to transform it into a meaningful comment about that work, creating an entirely new work in the process.[20] Addressing the second factor, the Court found that parodies almost always use publicly known works that are copyrighted.[21] The third factor was resolved in favor of Fair Use, because in this instance, the final product was distinctive and its lyrics had greatly departed from the original work.[22] Finally, the fourth factor was also resolved in favor of the parody creators, with the Court finding that there would likely be no significant market harm from the creation of this particular parody for the underlying copyrighted work.[23]

Theoretically, under the Campbell decision Fair Use doctrine could apply to protect those that mash up other artists’ work because—like a parody, their use of the copyrighted musical samples transforms them into something new and creative—is insubstantial in relation to the work as a whole and is unlikely to affect the market for the copyrighted work. It appears that, at least at the circuit court level, this defense has not been the basis for any decision. In district court, however, Campbell’s four-factor test was applied in Estate of James Oscar Smith v. Cash Money Records, Inc., et al., and the court held that rearranging and altering the message of the underlying copyrighted work was transformative because the purpose of creating the new song was markedly different from the purpose of creating the underlying work.[24]

This would seem to suggest that Fair Use can be a defense for mashup artists so long as the purpose in creating the DJ mashup was markedly different than that of the underlying song. However, given the fact that mashups generally directly take a clip from the underlying work rather than re-arranging the work to truly transform it, it seems like a Court would have to expand the breadth of the current law to find that such sampling qualifies as Fair Use under Campbell. As such, the actual outcome of such an argument is difficult to predict.

 

Conclusion

The state of copyright law as it relates to the sampling of short clips of copyrighted music in DJ booth mashups is anything but clear. Given the circuit split that exists on the availability of the De Minimis Use defense and the difficulty and unpredictability of the Fair Use defense, it seems that the best route of action for artists who seek to use copyrighted material is to obtain a license for both the composition and the right to the recording. Despite the need for licensing being costly and time-consuming, this route is likely cheaper than the alternative: battling it out with record companies and other owners of the originally copyrighted work in court.

 

Notes

[1] What Musicians Should Know About Copyright, U.S. Copyright Off. (last visited Nov. 9, 2025), https://www.copyright.gov/engage/musicians/.

[2] Id.

[3] How Long Does Copyright Protection Last?, U.S. Copyright Off. (last visited Nov. 9, 2025), https://www.copyright.gov/help/faq/faq-duration.html.

[4] See The Legal States of Mashup Music, OG+S (June 18, 2019), https://ogs.law/copyright/mashup-is-it-legal/ (discussing how mashup artists could obtain a license for each source of copyrighted material that they clip).

[5] Id.

[6] Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792, 801 (6th Cir. 2005).

[7] Id. at 795–96.

[8] Id. at 797.

[9] Newton v. Diamond, 388 F.3d 1189, 1195 (9th Cir. 2004).

[10] Id. at 1192.

[11] Id. at 1193.

[12] Id.

[13] Id. at 1196.

[14] VMG Salsoul, LLC v. Ciccone, 824 F.3d 871 (9th Cir. 2016).

[15] Id. at 875.

[16] Id. at 874.

[17] Can I Use Someone Else’s Work? Can Someone Else Use Mine?, U.S. Copyright Off. (last visited Nov. 11, 2025), https://www.copyright.gov/help/faq/faq-fairuse.html.

[18] Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 585, 586, 590 (1994) (finding that a parody could qualify for the Fair Use defense and remanding for further consideration to the lower court).

[19] Id. at 594.

[20] Id. at 579.

[21] Id. at 586.

[22] Id. at 588–59.

[23] Id. at 591.

[24] Case Summary Estate of James Oscar Smith v. Cash Money Records, Inc., et al., U.S. Copyright Off. Fair Use Index, https://www.copyright.gov/fair-use/summaries/estate-of-james-oscar-smith-cash-money-records-no.1-14-cv-02703-2017.pdf (last visited Nov. 9, 2025).

Trump’s Shortsighted Proposal Would Shatter the Patent System

November 17, 2025
Administrative Law, Intellectual Property, Patents

Charlotte Lucas, JLST Staffer

The overall objectives of the U.S. patent system are to foster innovation, maintain inclusivity and fairness to all potential patent applicants, and achieve overall financial balance.[1] A patent, because it grants the patent holder a temporary monopoly of their invention, inherently has costs and benefits to society. Patent holders are able to face less competition for their product and thus make more money from it during the patent period, which incentivizes inventors to put time and money into developing new inventions that can benefit society.[2] However, the fact that patents create a monopoly on that invention, forcing consumers to spend more money than the market value to obtain a patented invention, is a cost to society.[3]

The patent system works by charging patent holders fees to obtain and maintain patents.[4] The fees cover the services that the United States Patent and Trademark Office (“USPTO”) provides.[5] Entities file for patents, and the size of that entity determines the fee amount.[6] The USPTO charges fees for filing and examining an application, for issuing a patent, and for maintenance during the 20-year life of the patent.[7]

The current fee system has multiple goals, one being to achieve financial balance for the USPTO by covering the costs of the patent process.[8] The discounts for small and micro entities are meant to foster innovation and increase fairness by lowering the barrier to obtaining and maintaining patents.[9] Additionally, charging maintenance fees will decrease the number of patents currently in effect, especially economically unviable ones, because not all entities will maintain all their patents.[10] Overall, the current fee model works, at least to make money for the USPTO. The USPTO estimated almost $4 billion in income from patent fees last year.[11] The USPTO does not cost taxpayers money and just runs on the fees paid by current patent holders.[12]

The Trump Administration is discussing charging patent holders fees equal to a percentage of their overall patent value.[13] The proposed percentage would be one to five percent.[14] The new fee system “would be a much more exorbitant cost for some patent holders that would function like a property tax.”[15] It would be a complete change to the 235-year-old patent system and a stark departure from the practices of any foreign country.[16] Whether the proposal would replace or add to the current fee system is unclear.[17]

The presidential administration suggests using the revenue to pay the national debt or for purposes in other areas of the government.[18] The administration is also considering a budget item for the USPTO that could transfer the extra money to other agencies of the government.[19] Trump nominated John Squires (“Squires”) to the position of USPTO director, and the Senate confirmed his appointment.[20] Squires, as a nominee and supporter of Trump, is expected to support the proposed fee system.[21] The USPTO’s authority to set its fees expires next year, and, therefore, Congress may change the way that the patent fee system works to be in line with the proposal, or Congress may prevent the USPTO from changing the system.[22]

Congress, and not the executive branch, has the power to levy taxes.[23] The USPTO has the right, granted by Congress, to charge fees to patent holders to pay for the services the USPTO provides.[24] However, charging patent holders a percentage of the overall patent value may constitute a tax more than a fee. The primary purpose of the proposed plan is to raise money for the government, generally to pay off the deficit or for services outside of the USPTO.[25] Such a goal is usually the purpose of a tax.[26] In contrast, the purpose of a fee is to pay for the cost of the specific services provided to the payer of the fee, such as the services the USPTO provides to patent applicants.[27] Additionally, the voluntariness of obtaining a patent and thus paying the proposed fees is not relevant to determining if the charge is a tax or a fee.[28] If someone voluntarily purchases alcohol at a store, they have to pay a sales tax, not a sales fee. The sales tax, although voluntary because no one has to purchase alcohol, still has the primary purpose of general revenue raising, not paying for a specific service. This would be the same as charging patent holders a percentage of the overall patent value, because, although voluntary, it would raise money, generally not just for the USPTO’s services.

In addition to the potential legal issues, several implementation and policy concerns exist. First, how or when the patent value will be assessed is unclear.[29] Patents can have commercial value but also hold value for the amount for which the patent owner could sell or license the patent. The commercial value of a patent is unknown at the time the patent is granted.[30] Even if the amount is assessed multiple times during the patent term, many different components go into how valuable a patent is.[31] For example, a patent granted to Apple to be used in an iPhone is working alongside hundreds of other patents in the phone. How would the government decide how the success of an iPhone is split among all the patents? Also, Apple’s branding, reputation, business model, and previous customer base are other factors contributing to an iPhone’s success. Would the government account for that, and if so, how?

If the government equates the overall patent value to the amount for which the patent owner could sell or license the patent, additional concerns are raised. How would the government determine that amount accurately? Especially because the patent owner may not want to sell or license the patent, or might not have any competitors interested in that specific patent on its own, despite being valuable.

If the government determines how to assess the patent value, the proposal might not even raise money for the government. First, many patents already do not have a significant amount of commercial value.[32] The holders of those patents sometimes let the invaluable patents lapse, but sometimes keep the patents active and pay the maintenance fees. The holders of commercially invaluable patents under the new system likely would not be paying that much in fees and would not make that much money for the government. Second, some potential patent holders may not even apply for a patent because of the possible taxes and instead rely on trade secret protection or first-to-market benefits. Not only would that mean that the USPTO would not get any revenue from that potential patent, but the potential decrease in patents would not encourage innovation or the distribution of knowledge. Third, large companies with many resources would likely find loopholes or reorganization tricks to limit the value of their patents.[33] Companies would be spending money and time on avoiding or limiting the tax rather than on R&D, thus limiting and discouraging innovation and not truly raising money for the government.[34] Fourth, the government would have to create a system to determine the value of the 3.5 million active U.S. patents, which would be very expensive.[35] Additionally, patent holders upset at the valuations could try to contest the amount, leading to a significant amount of litigation.[36] Therefore, the plan would raise operating costs for the USPTO and not lead to more money to pay off the government deficit.

The proposed plan would likely achieve the opposite of the USPTO’s goals. Any money that companies make from the patents they own is already taxed on the federal and state levels. More money that companies have to pay under the proposal to maintain patents would take money away from their profits and reduce investment into R&D, therefore decreasing innovation. Small businesses and start-ups would be the most impacted. They have the least amount of money to pay any patent fees, and often they hold patents as their primary assets. Forcing them to pay more to maintain would decrease the likelihood of innovation. It would not encourage fairness, and it would increase the barrier to entry for gaining a patent, the opposite of what the current system attempts to achieve with its tiers of patent fees.

Overall, the proposed system would discourage innovation, decrease fairness, and be difficult to implement. The system probably would not even achieve the goal of raising money for the government due to the increased costs of implementing the system. Additionally, legal challenges and backlash from patent-holding companies are likely. The proposal would be a drastic shift in how the patent system works and would make the U.S. a significant outlier in the world.

 

Notes

[1] Gaétan de Rassenfosse & Adam B. Jaffe, Framework for Analysis of U.S. Patent Fee Structure Options 2 (Dec. 2024),  https://www.uspto.gov/sites/default/files/documents/UAIA_Fee_Study_Framework_for_Analysis.pdf.

[2] Id. at 10–12.

[3] Id.

[4] Id. at 2.

[5] Id.

[6] 37 C.F.R. § 1.16.

[7] 37 C.F.R. §§ 1.16, 1.17, 1.18, 1.20.

[8] De Rassenfosse & Jaffe, supra note 1.

[9] Id. at 16–18.

[10] Id. at 18–19.

[11] United States Patent and Trademark Office, Fiscal Year 2025 Congressional Submission 3 (Mar. 2024), https://www.uspto.gov/sites/default/files/documents/fy25pbr.pdf.

[12] Id.

[13] Amrith Ramkumar, Trump Administration Weighs Patent System Overhaul to Raise Revenue, Wall St. J., July 28, 2025, https://www.wsj.com/politics/policy/patent-system-overhaul-18e0f06f?gaa_at=eafs&gaa_n=AWEtsqcrNTdIjXDybihSzFhBXwdMfKp1P3twYDq3pdyZ1O9OqaQjMcPsCTRSSd162eE%3D&gaa_ts=69167aa4&gaa_sig=sn7mig18LPadrQwSl70zopRzxIWhd-iGUBVS5lUE7D6lZS-f4l7FaJOwcYTLujXukFEKbMBrfD0SCOOLFvxJhw%3D%3D.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Press Release, United States Patent and Trademark Office, USPTO Welcomes New Director John A. Squires (Sept. 22, 2025), https://www.uspto.gov/about-us/news-updates/uspto-welcomes-new-director-john-squires.

[21] Ramkumar, supra note 13.

[22] Id.

[23] U.S. Const. art. I, § 8, cl. 1.

[24] De Rassenfosse & Jaffe, supra note 1, at 2.

[25] Ramkumar, supra note 13.

[26] Nat’l Cable Television Ass’n, Inc. v. United States, 415 U.S. 336, 340–41 (1974).

[27] Id.

[28] See generally, Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012) (determining that the individual mandate penalty was a valid tax, even though it was a voluntary choice for citizens to not purchase insurance and thus pay the individual mandate penalty).

[29] Rodrigo Balbontin, Taxing Patent Value Is a Patently Bad Idea, Info. Tech. & Innovation Found. (Aug. 4, 2025), https://itif.org/publications/2025/08/04/tax-on-patent-value-is-a-patently-bad-idea/.

[30] Id.

[31] Id.

[32] Sujai Shivakumar & Chris Borges, Don’t Tax Invention: The Risks of a Patent Tax, Ctr. for Strategic & Int’l Stud. (Sept. 4, 2025), https://www.csis.org/analysis/dont-tax-invention-risks-patent-tax.

[33] Balbontin, supra note 29.

[34] Id.

[35] Shivakumar & Borges, supra note 32.

[36] Id.

The [In]adequate Provision Loophole: The Future of Drug Advertisements

November 10, 2025
Administrative Law, Food and Drug Law, Telecommunication

Caelen Caspers, MJLST Staffer

The television shows a sunny day, birds chirping, and kids skipping. A journal staffer attempts to join in, but winces in remembrance of cite checks. The narrator sighs and explains that life’s moments should not be interrupted by the discomfort of bluebooking. Loudly, the narrator cuts in, “That’s why there’s LawRizzy—clinically proven to relieve the racking pain of cite checks.” The narrator directs you to talk to your healthcare provider and rambles off a few side effects.

Sound familiar? Direct-to-consumer (“DTC”) drug broadcasts have become prolific on our television, social media, podcasts, etc. The rise of DTC advertising is attributed mainly to the “adequate provision loophole”[1]—a regulatory text utilized by drug companies to minimize risk disclosures and instead refer viewers to a secondary source for additional information.[2]

On September 9, 2025, the Food and Drug Administration (“FDA”) announced plans to rescind the loophole.[3] Without it, pharmaceutical companies would have to provide a disclosure of all necessary information related to a drug’s side effects and contraindications in their advertisements.[4] Controversy has since ensued.

 

Statutory Context

Currently, the law requires that broadcast advertisements must include a “major statement” of “information relating to major side effects and contraindications . . . of the advertised drugs.”[5] Additionally, the advertisements must contain a “brief summary of all necessary information related to [the major statement], unless adequate provision is made for dissemination of the approved or permitted product labeling in connection with the broadcast presentation.”[6]

The provision did not garner loophole status until 1997, following guidance by the FDA,[7] wherein a drug company provides an adequate provision by presenting “reasonably convenient access” to the product’s labeling.[8] This can be accomplished by disclosing a toll-free number, print page, webpage, and a directive to speak to a medical professional.[9] Lucy Rose, a former FDA employee involved in drafting the guidance, explained that the purpose of the is regulation not as a loophole, but rather to balance “the demands for marketing new drugs and informing patients.”[10]

 

The Controversy

Indeed, there are many persuasive arguments in favor of the adequate provision loophole. First, proponents argue that it is essential to avoid burdening the consumer with bulky risk information.[11] The mass of information merely functions to fearmonger, desensitize, and dilute more serious risks among minor issues.[12] Second, proponents underscore the benefits to public health, such as public awareness and market competition.[13] Moreover, standards for disclosure and fair balance are well-established, hence, if the administration were to enforce the existing law, then there would be no need for eliminating the provision.[14] Finally, proponents warn that the FDA’s proposed action will have a chilling effect on drug companies’ First Amendment rights.[15]

Those adverse to the provision argue that it is “used to conceal critical safety risks in broadcast and digital ads, fueling inappropriate drug use and eroding public trust.”[16] The FDA contends that DTC ads lead to more prescription requests and inappropriate prescribing.[17] FDA Commissioner, Marty Makary, stressed that the 25% of drug companies’ budget towards advertising could be “better spent on lowering drug prices for everyday Americans.”[18] Furthermore, the FDA admitted to difficulty in regulating DTC advertising in social media, making it “increasingly difficult for patients to distinguish between evidence-based information and promotional material.”[19]

 

The Future

It is easy to envision the provision in practice, given the unavoidability of DTC advertisements on our screens. You anticipate the statement “ask your health provider about LawRizzy! Side effects include panic attacks, failing journal, or dizziness.” Without it, advertisers would be required to include a “brief summary of all necessary information related to the major side effects and contraindications.”[20]

But what constitutes a brief summary? Health and Human Services (“HHS”) Secretary Robert F. Kennedy proclaimed “[o]nly radical transparency will break the cycle of over-medicalization that drives America’s chronic disease epidemic.”[21] Thus, on one extreme, it appears that the purpose of the rescission is part of a larger effort to ban DTC drug advertisements altogether.

Is it realistic that the FDA can curtail all drug advertisements? Before to 1997, drug advertising in the United States was virtually non-existent.[22] However, given that DTC ads have become industry standard, it might be too difficult to put the mouse back in the bag. And, Big Pharma is unlikely to go quietly, likely to give rise to immense litigation.[23]

The FDA has yet to release guidance on what constitutes presentation of a “brief summary.”[24] One might expect subsequent guidance from the FDA, as done prior with “major statement” in 2023[25] and “adequate provision” in 1999.[26] Until it does, the future landscape of DTC drug advertising will remain uncertain.

 

Notes

[1] U.S. Dep’t Health & Hum. Servs., HHS, FDA to Require Full Safety Disclosure in Drug Ads (Sept. 9, 2025), https://www.hhs.gov/press-room/hhs-fda-drug-ad-transparency.html.

[2] See Login H. Merril, The FDA Just Killed Big Pharma’s Favorite Loophole, Freedom (Sept. 20, 2025), https://www.freedommag.org/news/the-fda-just-killed-big-pharmas-favorite-loophole-d87bf6 (explaining the adequate provision).

[3] U.S. Food & Drug Admin., FDA Launches Crackdown on Deceptive Drug Advertising (Sept. 9, 2025), https://www.fda.gov/news-events/press-announcements/fda-launches-crackdown-deceptive-drug-advertising.

[4] Id.

[5] 21 C.F.R. 202.1(e)(1)(i)(A).

[6] 21 C.F.R. 202.1(e)(1)(i)(B) (emphasis added).

[7] U.S. Food & Drug Admin., Guidance for Industry: Consumer Directed Broadcast Advertisements 2–3 (Aug. 1999), https://www.fda.gov/media/75406/download.

[8] Id. x

[9] Id.

[10] See Annalee Armstrong, In New DTC Ad Crackdown, FDA Trying to Close a Loophole That Isn’t, Biospace (Sept. 17, 2025), https://www.biospace.com/policy/in-new-dtc-ad-crackdown-fda-trying-to-close-a-loophole-that-isnt (citing Lucy Rose, A Response and Suggested Path Forward to FDA’s Fact Sheet, LinkedIn (Sept. 15, 2025), https://www.linkedin.com/pulse/response-suggested-path-forward-fdas-fact-sheet-ensuring-lucy-rose-jrple/?trackingId=h8%2BVIWXVSpKr4lMOeqQnQA%3D%3D).

[11] See James A. Boiani, et al., HHS, FDA Target Direct-to-Consumer Drug Advertising: A Paradigm Shift in Patient-Focused Communications, 15 Nat’l L. Rev. 278, 278 (Sept. 29, 2025), https://www.healthlawadvisor.com/hhs-fda-target-direct-to-consumer-drug-advertising-a-paradigm-shift-in-patient-focused-communications (explaining the importance the adequate provision).

[12] Id.

[13] Id.

[14] Id. (discussing enforcement of existing law).

[15] Joanne S. Eglovitch, FDA Cracks Down on Drug Ads, Promises to End the Adequate Provision ‘Loophole’, Regul, Focus (Sept. 10, 2025), https://www.raps.org/news-and-articles/news-articles/2025/9/fda-cracks-down-on-drugs-ads,-promises-to-end-adeq (“[T]ruthful and non-misleading DTC advertising is protected under the First Amendment and has documented evidence of advancing patient awareness and engagement.”)

[16] U.S. Food & Drug Admin., supra note 3 (citing Mor, et. al., Pharmaceutical Industry Promotional Activities on Social Media: A Scoping Review, 15 J. Pharm. Health Servs. Rsch. 1 (2024)).

[17] Id.

[18] Id.

[19] Id.

[20] 21 C.F.R. 202.1(e)(1)(i)(B).

[21] U.S. Food & Drug Admin., supra note 3 (emphasis added).

[22] Boiani, supra note 11.

[23] See Eglovitch, supra note 15 (discussing potential litigation on First Amendment grounds).

[24] See HHS and FDA Declare “Crackdown” on Drug Advertising and Promotion, King & Spalding (Sept. 10, 2025), https://www.kslaw.com/news-and-insights/hhs-and-fda-declare-crackdown-on-drug-advertising-and-promotion (“[The FDA] has not specifically addressed the presentation of the ‘brief summary’”).

[25] Direct-to-Consumer Prescription Drug Advertisements: Presentation of the Major Statement in a Clear, Conspicuous, and Neutral Manner in Advertisements in Television and Radio Format, 88 Fed. Reg. 80958 (Nov. 21, 2023) (to be codified at 21 C.F.R. pt. 202).

[26] U.S. Food & Drug Admin., supra note 7.

Why New York’s Algorithmic Pricing Disclosure Act Is Not Enough

November 3, 2025
Artificial Intelligence, Business Law, Economics

Jannelle Liu, MJLST Staffer

As artificial intelligence (“AI”) becomes increasingly integrated into business development strategies, policymakers have been prompted to consider new frameworks for oversight and accountability.[1] One prominent—and increasingly contentious—example is algorithmic pricing. The Canadian Competition Bureau broadly defines algorithmic pricing as the process of using automated algorithms to set or recommend prices for products or services, often in real time, based on a set of data inputs across the market.[2]

Algorithmic pricing recently became a contested topic of conversation as more U.S. lawmakers began introducing legislation to regulate these practices. On May 9, 2025, New York passed the Algorithmic Pricing Disclosure Act (“the Act”), which took effect on July 8, 2025.[3] The Act requires any business that uses algorithmic pricing based on consumer data to provide clear and conspicuous notice.[4] Specifically, the Act requires every advertisement, display, image, offer, or announcement of a price to include the following disclosure next to the price: “THIS PRICE WAS SET BY AN ALGORITHM USING YOUR PERSONAL DATA.”[5] The Act is an attempt to promote AI transparency. Although transparency is a necessary and important safeguard for accountability and consumer protection, this Act alone is not enough to establish effective oversight and prevent discriminatory pricing practices.[6]

As businesses increasingly rely on algorithmic pricing to optimize profits and dynamically respond to market demand, many AI researchers and tech advocates have called for greater transparency.[7] AI ethics guidelines focus on achieving transparency through principles of explainability and auditability. “Explainability” refers to the possibility of understanding how a system works and its outcomes.[8] For example, if a business uses an algorithm to set different prices for the same product based on user data, explainability measures whether the consumers know that the price is determined by an algorithm and the factors influenced the final price, such that they can determine if they are being charged disproportionately or unfairly. Transparency builds explainability, which gives consumers insight into AI decision-making and enables them to challenge unfair outcomes.

“Accountability” in AI refers to the duty of an organization that implements an AI system to inform and justify its usage and effects.[9] For example, if a business sets higher prices for certain neighborhoods or zip codes because it predicts residents are willing to pay more for their product, accountability requires the business to explain how the algorithm sets prices, justify that it does not unfairly discriminate against lower-income or minority communities, and correct any biased outcomes if they occur. Transparency ensures that businesses are being held accountable for fairness and equity in their algorithmic pricing practices.

Transparency is often regarded as the solution to a myriad of problems and remains a focus for most policy proposals in the field of AI.[10] In fact, 165 out of 200 AI ethics guidelines are specifically focused on promoting AI transparency.[11] It is equally important, however, to recognize that transparency has many flaws on its own. The link between transparency and accountability is tenuous at best. Consumers often do not know what information they need to have about a problem. Even when they are given information, many consumers do not have the background knowledge or tools necessary to make sense of it. On the other hand, companies are incentivized to refrain from being fully transparent to maintain competitive advantages and trade secrets, and to dodge the costly process of producing comprehensive algorithmic disclosures.[12] The complicated nature of these algorithms already introduces significant barriers to interpretability. Placing the burden of transparency on businesses—who are incentivized to control the narrative by selectively revealing information—becomes inherently counterintuitive to the goals of explainability and accountability.

New York is not the only state responding to risks posed by algorithmic pricing, but its approach is among the most modest. Emerging state legislation sheds light on the broader regulatory landscape surrounding AI-driven pricing practices. By contrast, other states have proposed more stringent measures. Vermont is currently considering a bill that prohibits all dynamic pricing past the point of sale, which eliminates the ability of businesses to adjust prices in real time.[13] Minnesota has proposed an outright ban on algorithmic pricing practices.[14] California is considering a bill that bans “surveillance pricing,” which sets customized prices based on personally identifiable information collected through surveillance.[15] Consumers in California would be able to bring injunctive actions directly against businesses under this act.[16] Compared with these proposals, New York’s Algorithmic Pricing Disclosure takes a notably minimalist approach. New York’s regulation only requires businesses to disclose when a price was set using consumer data. The law does not address fairness, prevent discriminatory pricing, or provide consumers with any direct remedies.

New York’s Algorithmic Pricing Disclosure Act represents a step in the right direction to regulate the currently under-regulated field of algorithmic pricing. However, it is only a start. Effective governance of algorithmic systems requires coordinated action across states, tech companies, universities, and the public.[17] Merely requiring businesses to acknowledge the use of algorithmic pricing is simply not enough to counter the risks of unfair, predatory, and discriminatory pricing. It is important to introduce mechanisms to monitor compliance, evaluate the impacts these systems have, and provide affected communities with a means for recourse and meaningful participation. While transparency is politically appealing and relatively easy to implement, it fails to achieve any meaningful impact without rigorous enforcement. AI transparency laws like New York’s Algorithmic Pricing Disclosure Act must be backed by adequately funded agencies with the authority to conduct audits and impose substantive sanctions on companies and the executives responsible for unfair or predatory pricing. Any transparency or disclosure-focused policies should also reflect what the public really wants to know and can interpret. Acknowledging that an algorithm was used to set prices, without any disclosure on how the algorithm functions, the data it uses, or its potential biases, fails to create meaningful accountability or consumer protection.

 

Notes

[1] Beth Stackpole, How Big Firms Leverage Artificial Intelligence for Competitive Advantage, MIT Sloan: Ideas Made to Matter (May 26, 2021), https://mitsloan.mit.edu/ideas-made-to-matter/how-big-firms-leverage-artificial-intelligence-competitive-advantage.

[2] Competition Bureau Can., Algorithmic Pricing and Competition: Discussion Paper (June 10, 2025), https://competition-bureau.canada.ca/en/how-we-foster-competition/education-and-outreach/publications/algorithmic-pricing-and-competition-discussion-paper.

[3] N.Y. Gen. Bus. L. § 349-a (McKinney 2025).

[4] Id.

[5] Id.

[6] Goli Mahdavi & Carlie Tenenbaum, New York’s Sweeping Algorithmic Pricing Reforms – What Retailers Need to Know, BCLP L. (July 22, 2025), https://www.bclplaw.com/en-US/events-insights-news/new-yorks-sweeping-algorithmic-pricing-reforms-what-retailers-need-to-know.html.

[7] Elizabeth Meehan, Transparency Won’t Be Enough for AI Accountability, Tech Pol’y (May 17, 2023), https://www.techpolicy.press/transparency-wont-be-enough-for-ai-accountability/.

[8] Juan David Gutiérrez, Why Does Algorithmic Transparency Matter and What Can We Do About It?, Open Glob. Rts. (Apr. 9, 2025), https://www.openglobalrights.org/why-does-algorithmic-transparency-matter-and-what-can-we-do-about-it/.

[9] Id.

[10] Id.

[11] Meehan, supra note 7.

[12] AI Transparency: What Are Companies Really Hiding?, Open Tools (Jan. 16, 2025), https://opentools.ai/news/ai-transparency-what-are-companies-really-hiding#section5.

[13] Gutiérrez, supra note 8.

[14] Robbie Sequiera, Cities–Including Minneapolis–Lead Bans on Algorithmic Rent Hikes as States Lag Behind, Minn. Reformer (Apr. 2, 2025), https://minnesotareformer.com/2025/04/02/cities-including-minneapolis-lead-bans-on-algorithmic-rent-hikes-as-states-lag-behind/.

[15] Gutiérrez, supra note 8.

[16] Stackpole, supra note 1.

[17] Gutiérrez, supra note 8.

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