It’s no surprise that AI is dominating the news cycle. One would be hard pressed to find another trend that has so quickly woven itself into the fabric of legal documents. We are seeing service agreement riders, diligence requests, and representations and warranties specifically related to AI appear in all manner of transactions. To this end, we are going to see more and more AI-related issues and regulation as time goes by.
While generative AI (GenAI) issues get a lot of attention, companies are also focusing on traditional AI, such as machine learning. In fact, machine learning and GenAI technologies were the top two new areas companies were actively investigating and working with in 2023.
Changing Regulatory Framework
The proliferation of GenAI products—and the focus by corporations and consumers on them—is rapidly leading to various forms of AI regulation. That is why our current advice focuses on disclosure, both on the contract and the policy side. Disclosure is vital because of this changing regulatory environment. Companies cannot comply with regulations if they do not have a thorough inventory of the AI technologies that they and their vendors are using.
Notifications
From a notifications perspective, key items customers will want to consider are:
Key Contract Provisions
A lot of these negotiation concepts are not new, but AI is causing us to think about them a little differently than we would in the traditional context. One focus throughout all of this is how do we think about the traditional provisions that are in the agreement in a way that is informed by this new world of AI-driven technologies.
Testing
Customers will want to build into contracts adequate time to really test the AI before it is deployed. AI products require extensive testing to determine if they are functioning as intended. Consider pilots and soft launches to understand whether a product is ready for production.
Compliance
The contractual allocation of compliance responsibility within the AI ecosystem is becoming increasingly important. Customers will want to make sure that the compliance with law representation is broad enough to cover not just the laws that may be applicable to a vendor but also those applicable to the intended usage or the usage in accordance with the agreement.
IP Ownership/Licensing
The notion of ownership and licensing is unique in an AI discussion. When making this determination, customers will want to consider: Is this AI going to be used and trained on their data? It is one of the driving features as to how to determine which provisions to include.
IP Ownership/Infringement
Customers will want to consider if their IP ownership provisions are broad enough to capture the likely outcomes of the AI product. A major issue is going to be to what extent vendors are willing to stand behind third-party IP protection for the outcomes or new data generated by the AI product.
AI Use Policy
There are two things to keep in mind regarding AI use policies:
AI is not just making news. It is changing how companies do business and will even more so in the future. AI products are increasingly coming to market, and in a widening array of use cases. Contract terms in most transactional areas are being specifically developed to address the issues that crop up. Directly related regulation is also being created, which will continue to make this an evolving area for the foreseeable future.