AI Gives Rise to New Contractual Provisions

Contracts are an important tool for managing risks outside your organization. We’ve previously written about using contract terms to protect data sets, ensure legal compliance, and mitigate AI risks. As AI proliferates, we’ll likely see contractual provisions related to AI use become commonplace. A recent Taft memo discusses three common types of AI clauses that are gaining popularity:

“Data Use and Training Data: Warranties concerning the target company’s rights to use data for AI training and assurances as to the source, accuracy, and ownership of the training data set are being more frequently utilized. A clause may require a specific representation that the AI model was trained only with permissioned data (i.e., data that was obtained through legally binding consent or licenses for use). For companies using third-party GenAI, a representation may require the disclosure of the specific tools being utilized and the terms of the applicable license.

Intellectual Property: Clauses certifying ownership of AI-specific assets, such as algorithms, models, and parameters, can be included in contracts. For example, a clause may state that the user or licensee will own the IP for any works generated by the AI model, especially when a model is used for product design or content creation. These clauses may also address the risk of infringement associated with a model’s training and output, such as through indemnification provisions in service contracts.

Governance and Compliance: Contracts may now include assurances that there are internal AI governance frameworks, including documented policies for testing and monitoring, “human in the loop” requirements, and that the entity complies with any applicable AI laws and regulations. A representation might be that no AI models or platforms were utilized in the generation of a product, or that all employees have signed a data use agreement that prohibits entering any company information into GenAI models.”

As AI use grows among supply chain partners and AI integration continues to affect business models and valuations, contract drafters must be prepared to address these issues. Additionally, companies should ensure appropriate AI governance structures are in place to comply with binding AI obligations as they arise.