AI washing litigation

US examples

The following are examples of allegations from recent claims in the United States:

• Using vague AI buzzwords (such as “AI powered” and “machine learning-driven”) to create a perception of sophistication
• Overstating AI performance capabilities (for example, that “proprietary AI models” outperform competitors’ systems and methods)
• Overstating the financial benefit of AI (for example, falsely representing leadership in AI-powered predictive capabilities)
• Claiming to be an “AI company” without meaningful AI investment (such as rebranding as an AI company without meaningfully investing in AI technology, and using low-cost remote workers instead)

The US experience may be a preview of what is to come in Canada, and serves as a reminder that AI-related disclosure reviews and assessments require the same prompt attention and rigour as other public-facing disclosures.

AI washing in Canada: regulatory guidance and early litigation

Canada has not yet seen the same spike in AI washing class actions. In one recent Canadian case, a plaintiff commenced a proposed class action involving AI-related disclosure. The allegations include that the company failed to disclose material facts relevant to its AI products and services, and thereby negligently reported its financial performance. The claim has not been certified.

In December 2024, the Canadian Securities Administrators issued guidance cautioning issuers that AI washing “may be misleading to the public or constitute a misrepresentation, as defined by securities legislation”, and warned against “vague and unsubstantiated statements” about AI.

As with greenwashing claims, a key issue in AI washing cases may be whether the alleged misrepresentation is sufficiently material to investors. While AI has become a significant market theme, it remains to be seen how Canadian courts will assess whether statements about an issuer’s AI capabilities or competitive advantages would reasonably be expected to have a significant effect on the market price or value of the issuer’s securities.

The rapidly evolving nature of AI may also complicate courts’ assessments of alleged misrepresentations. Given the uncertainty surrounding AI capabilities and the value that AI may ultimately generate, courts and regulators may face challenges in distinguishing between statements that were misleading when made, and forward-looking statements or expectations that simply failed to materialize. More broadly, AI washing claims may also raise novel questions about how continuous disclosure obligations intersect with a rapidly evolving technological landscape.

As scrutiny of AI-related statements intensifies, all AI-related disclosures must be accurate; reflect the issuer’s actual AI reality; and not contain exaggerated, imprecise, or unsupported claims about the sophistication, performance, or revenue impact of AI technology. Issuers should also monitor regulatory guidance and legislative developments, including in the competition and consumer protection regulatory contexts.