The Morning Download: Courts Play Outsized Role in AI

Good morning. Markets have an aversion to uncertainty, which is bountiful by nature as technology evolves so fast. That unavoidable uncertainty is being compounded by a lack of regulation and legislation over AI, social media and more. That forces the courts to step in, and provide guardrails and limits on an ad hoc basis, which is a problem for tech companies and customers alike.

In recent days, the courts have issued a wave of tech and AI rulings. A U.S. federal judge halted the Trump administration’s designation of Anthropic as a supply-chain risk, citing free-speech violations. Juries in New Mexico and Los Angeles found Meta Platforms liable for harms to young people, citing exposure to harmful content and addictive product design. And the Supreme Court ruled internet service providers are not liable for customers’ copyright infringement, saving Cox Communications from damages. A federal court dismissed a lawsuit by X against an ad-industry coalition including brands CVS Health and Lego, alleging an illegal boycott.

The Los Angeles case against Meta was brought by the mother of a 20-year-old woman, Kaley G.M., because of the addictive nature of its products. She was a minor when the case was filed. Minors shouldn’t be filling the void left by regulators and elected officials or companies themselves. Sooner or later, the companies may come to regret it.

Back-to-back jury verdicts holding Meta liable for harms to young people “could open the way to a flood of litigation that could force it—and other social-media giants—to make significant changes to the way they design and deliver their products,” the WSJ warned. That warning should be heeded across all of AI and technology.

Trump administration plans to require higher wages for H-1B visa holders. The rule would lift the minimum pay for software developers and other workers who come to the U.S. in the H-1B program. It represents the latest effort to wean U.S. tech companies and other employers off skilled foreign labor. The administration in September announced a new $100,000 fee for the H-1B visa, up from the prior fee—$215.

FCC advances plan to bring outsourced call center jobs back to the U.S.  The Communications Workers of America, a union representing many telecom employees, has said that it's not just off-shoring, but AI agents, that threatens jobs.

Elon Musk’s X has let go of its chief marketing officer and conducted a round of layoffs of nontechnical staff over the last several weeks as it looks to right-size the social-media company ahead of its parent company SpaceX’s potential $1 trillion-plus IPO.

Microsoft is slowing hiring at its Azure and sales groups, among other units, in what the Information calls part of a broader shift among tech companies to offset AI spending.

Fortnite-maker Epic Games said it plans on laying off more than 1,000 employees, some 20% of its staff, the New York Times reports.

Highlights, and takeaways from our CPO Council Summit, our first for the Chief People Officer community.

Model mobility. Google added a Gemini feature letting users import chat history and context from rival AI apps like OpenAI's ChatGPT and Anthropic's Claude, Bloomberg reports.

In case you're wondering, OpenAI's erotic chatbot is on hold. With the company doubling-down on its core business, side projects, like the erotic model, are being pushed aside, FT reports. But it's not like there was much support for the offering among employees. 

As Meta Platform’s moved to cut more jobs from its Reality Labs unit this week, SciFi author Neil Stephenson on his blog said the "metaverse," a concept he introduced with 1992's cyberpunk classic "Snow Crash," was never about the goggles anyway: “People don’t like wearing things on their faces and don’t trust those who do.” 

What the Next "Big Arenas" Says to Technology Leaders

AI software and services, cloud services, semiconductors and cybersecurity are among the 18 industries a new McKinsey Global Institute report projects to generate outsize growth. Together, these industries could generate $29 trillion to $48 trillion in revenues by 2040, according to McKinsey.

McKinsey calls these industries "arenas," a grouping defined by two things: rapid growth and rapid reshuffling of who's on top. They can emerge when a technology or business model shift opens up a large market and triggers an arms race among competitors. Between 2005 and 2020, 12 industries met that definition, including e-commerce, cloud services, consumer internet and biopharmaceuticals.

Numbers worth knowing. Arenas attract a significant share of R&D: 65% of U.S. R&D spending in 2020 flowed to arenas and adjacent industries.

They also see unusually high rates of competitive displacement — in 2020, 34% of total arena market cap was held by companies that either didn't exist or weren't meaningfully competing in those spaces in 2005. For CIOs, that's a reason to think hard about vendor relationships and platform commitments.

Iran hasn’t requested a 10-day pause on strikes on its energy plants and is yet to deliver a final response to a 15-point plan to end the war, peace talk mediators said. (WSJ)

Senate Republicans and Democrats agreed early Friday to fund most of the Department of Homeland Security, moving to end a standoff over immigration enforcement in Congress that had led to missed paychecks for airport-security workers and long lines for travelers. (WSJ)

The Trump administration is putting President Trump’s signature on new U.S. paper currency in a first for a sitting president, the Treasury Department said Thursday. (WSJ)

The average Wall Street bonus rose to a record high of nearly $250,000, following a bonanza year for New York City’s investment banking powerhouses. (WSJ)

The WSJ Tech Council brings together CIOs, CTOs and CISOs advancing innovation and shaping the future. Join this trusted community where tech executives connect with peers to explore emerging trends and gain the perspective they need to stay ahead of disruption.

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The WSJ CIO Journal Team is Steven Rosenbush, Isabelle Bousquette and Belle Lin.

The editor, Tom Loftus, can be reached at thomas.loftus@wsj.com.