The Law and AI: What You Need to Know
Understanding the evolving legal landscape surrounding AI is crucial. In this article, we explore how AI is shaping the legal landscape, the risks involved, and strategies companies can adopt to remain compliant and mitigate liability.
The Role of AI
AI has become an indispensable technology in homes and businesses. The proliferation of generative AI large language models, like ChatGPT, has raised a host of new legal issues for organizations and their counsel to consider, including in the areas of: (i) commercial contracts; (ii) intellectual property and (iii) data privacy.
AI Defined
Artificial intelligence (AI) generally refers to computer technology with the ability to simulate human intelligence to: (i) analyze data, reach conclusions, find patterns, and predict future behavior, and/or (ii) learn from data and adapt to perform certain tasks better over time. Generative AI is a type of AI that uses unsupervised learning algorithms to create new content based on existing content, such as images, video, audio, text, or computer code.
What Companies Should Know
Companies can either develop AI products and services themselves, license AI from a third party, or utilize a combination of both. Whether acquiring an AI tool from a third party or developing AI solutions in-house, companies should consider:
1. Data
AI tools rely on large quantities of data. Vendors of AI-based services often include provisions in their agreements that allow them to accumulate and aggregate customer data. Businesses should consider whether this type of data use is appropriate, and in any case, consider limitations on vendor data use regarding:
Aggregation with other customers' data.
Anonymization so that no data can be identified to the business or a specific user.
Disclosure of the customer's data.
2. Liability for AI-Generated Errors
If an AI tool generates inaccurate results, who is responsible? The vendor? The customer? Establishing the appropriate risk allocation is key. Companies should pay close attention to the risk allocation provisions of their AI contracts, such as representations and warranties, indemnities, limitations of liability and insurance.
3. Product Liability
AI has proliferated in the consumer products market. These "smart" consumer products incorporate AI and internet connectivity into a physical product. Whether the device is a product, a service, or a hybrid of both may determine whether and to what extent product liability laws apply. When developing or using a “smart” product, companies should consider:
How product warranty liability should be allocated.
How to comply with applicable regulations.
How different forms of insurance coverage can help manage risk.
4. Data Privacy
Organizations using personal information in AI systems may face tensions when attempting to comply with global data protection laws. These laws generally apply to the collection, use, processing, disclosure, retention, storage, and security of personal information. These laws may also restrict cross-border transfers of personal information. Companies should consider whether their internal systems as robust enough to ensure that AI tools are transparent, explainable, fair, empirically sound, and foster accountability.
5. IP Protection For AI Products and Services
Creating and AI tool can present unique IP challenges. Ensuring that ownership for AI tools, especially when those tools are developed by third party vendors or in-house consultants is key. Companies should consider whether their AI technology should be protected by patent, copyright or trade secret, and closely monitor their customer agreements to ensure that protection for key IP is retained in customer contracts.
Best Practices for Managing AI
To minimize risk while leveraging AI’s capabilities, companies should adopt proactive legal strategies when using AI tools.
1. Establish Clear AI Policies
Businesses should have clear internal policies regarding AI use and acquisition. These policies should cover the businesses approach to AI throughout the organization – from product development and sourcing to sales and customer support.
2. Create a Contracting Playbook
To enhance consistency, streamline processes, reduce risks, and improve legal compliance relating to their AI contracts, companies should consider creating an AI contracting playbook. A playbook will enable the business to clearly define their best practices around risk allocation, data use, IP ownership and other key provisions in their AI contracts.
3. Strengthen Data Protection Measures
Companies should require vendors to undergo appropriate data security diligence during the sourcing process, and ensure that vendors are periodically audited for data security compliance. Security questionnaires should address AI compliance. Where AI tools are developed in-house, companies should ensure that data protection best practices concerning data minimization, purpose specification, and accuracy are incorporated into the product development process.
4. Address AI Bias and Transparency, Ensure that Systems are Fair
To avoid bias and other issues, whether an AI tool is sourced from third parties or developed in-house, businesses should:
Ensure AI tools are trained on diverse and unbiased datasets.
Regularly audit AI-generated outputs for fairness and neutrality.
Implement transparency measures to explain AI-driven decision-making.
5. Stay Ahead of Regulatory Changes
To keep abreast of the rapidly evolving AI landscape. Businesses should:
Monitor developments in AI-related laws, such as the EU AI Act.
Work with legal counsel to ensure compliance with AI governance frameworks.
Adapt contract terms to reflect new AI regulations and industry standards.
How Apex Legal Can Help
The increased use of AI technologies presents both opportunities and legal challenges. At Apex Legal, we specialize in helping businesses navigate these complexities. Our team provides:
AI policy development and compliance strategies;
Guidance on liability, IP rights, and enforceability of AI-driven agreements; and
Legal operations support.
Contact Apex Legal today to ensure your AI-powered contracts are legally sound and strategically optimized.