Friday, December 8, 2023

How Artificial Intelligence Changes Deal Terms – New Technology – United States

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Artificial intelligence (AI)—the combination of computer
science and data to solve problems, including through the use of
algorithms that attempt to make predictions or classifications
based on input data—is booming. AI tools like ChatGPT and
DALL-E have captured the public consciousness,1
and the world’s largest technology companies, including Google,2 Microsoft,3 and Amazon,4 have announced significant
investments in AI technology. Because the AI technology marketplace
is dynamic and rapidly evolving, so too are the relevant legal
terms for deals involving AI. In this article, we discuss several
high-value terms lawyers should carefully consider and address in a
deal that involves AI.

The Need for New or Different Terms in AI Deals

Existing deal terms and traditional considerations in technology
deals are often inadequate for AI. Businesses might expect existing
agreements (including, on the procurement side, those with major
technology providers like Google, Microsoft, and Amazon) to be
sufficient to cover AI. Similarly, one might assume that existing
contract templates and negotiation playbooks can be
“tweaked” to cover AI-specific deal points. Yet,
providers may (and often do) introduce new contractual terms for AI
technology, including through links to online terms or a
registration process requiring customers to consent to separate
legal terms in order to use AI products. It is also possible
(though in our experience, less common) for a provider to insist
that a contract for AI be entirely separate from the existing
enterprise deal.

The use of AI technology by an enterprise requires technology
lawyers to revisit, and in many cases, reimagine existing terms
across the full spectrum of relevant contracts, ranging from
procurement agreements and data licenses to customer contracts.
Below are several examples of the terms and conditions governing
the provision and use of AI that should be considered and addressed
to mitigate the risks attendant to AI technology.

Rights to AI Input, Training Data, AI Model Improvements

The concepts of AI input (including prompts), training data, and
model improvements—or the data processed in the AI tool and
results of this processing, and the related allocation of IP and
other rights—are similar to the traditional constructs of
“customer data”, “usage data”, and
“foreground IP” (as distinguished from
“background” or pre-existing IP) but transformed
in an AI context. In both cases, the contracting parties need to
have a clear understanding of the contractual terms that govern the
use of data provided to the AI tool by end users, or otherwise
collected or processed by the AI tool. In an AI deal, however, the
inputs into an AI tool, and the data training the AI model in such
tool continuously refine and improve the model and thereby become
inextricably linked. For that reason, the issues of
confidentiality, data rights and restrictions, and IP rights (in
both data and improved AI models) are more complex and

The analysis and associated risk assessment of these terms needs
to be performed carefully on a use-case-by-use-case basis,
identifying any inconsistencies and ambiguities in the proposed
approach given the AI technology and relevant use case, and
considering the value, risks, and restrictions associated with each
category of data and technology. Any negotiated changes to the
terms impacting these constructs should be traced through the
agreement, such that, for example, by obtaining IP rights in a
particular AI model improvement, a customer does not lose
protection of the warranties that otherwise apply to the AI tool,
or, conversely, by foregoing ownership rights in an improvement to
the AI model: a customer does not also grant broader-than-intended
rights to the corresponding AI input. If a customer is not able to
secure appropriate contractual protections in a given area relative
to the anticipated use cases, technology lawyers may be able to
collaborate with technical teams to identify operational mitigation
measures. If these measures are insufficient, any remaining
concerns may require narrowly tailored adjustments to the
underlying use case, such as limiting the data sets that are
exposed to the AI tool.

Rights to AI Output

The allocation of rights to the output of AI models raises
issues closely linked to those discussed above for AI input,
training data, and model improvements. Customers’ contractual
rights to AI output are often limited or, worse, ambiguous (which
is particularly problematic given the uncertainty of IP protection
that may accrue to the AI output under existing IP laws). The
starting point should be to resolve any ambiguity on this important
point and consider whether the express allocation of the ownership
or use rights and any corresponding limitations are appropriate for
the relevant use case.

There is also a risk of third-party challenges to the
customer’s negotiated rights to AI output, in part because AI
output is often based on or derived from vast data sets obtained
from a variety of sources (including publicly available data or
data of other users of the AI tool) and therefore subject to a
variety of use restrictions. To assess the risk of these potential
claims, you would need to conduct relatively extensive due
diligence on relevant AI technology, such as: (1) the manner in
which the applicable AI model was trained; (2) the data absorbed by
the trained AI model; (3) the sources of such data; and (4) the
confidential nature of such data and other restrictions on its use.
From the customer’s perspective, it is important that these
diligence disclosures be properly reflected in the relevant
contract as representations, warranties, and covenants, including
in connection with a non-infringement warranty described in more
detail below.

The AI Non-Infringement Warranty

Based on extensive IP challenges and related litigation as
described in the Generative Artificial Intelligence and
Intellectual Property
chapter of this book,5 the
non-infringement warranty is a key and often difficult issue in a
deal involving AI, with coverage of AI models and their
improvements, and AI output at the top of the list of concerns,
together with the allocation of responsibilities for defense and
indemnification of infringement claims. Customers should seek to
negotiate targeted provisions to address this important topic, with
a particular focus on potential claims by third parties relating to
the use of their content or other data to train the model, or the
AI model or its improvement. Thorough due diligence (including the
questions described above) or, if and when available, trustworthy
third-party certifications of compliance with third-party consents,
licenses, and other restrictions in the use of training data and
other pertinent aspects of development and monitoring of the
underlying model, will also help businesses assess the likelihood
of adverse claims. In addition to these measures, given the current
landscape of IP challenges and related litigation, users of AI
technology should consider supplementing any contractual
protections relating to AI output with infringement searches
(mirroring any existing processes for IP reviews in connection with
creation and use of new data or materials), and potentially
corresponding allocation of costs of these searches with the

The AI Performance Warranty

In an AI context, an ordinary performance warranty that the AI
tool complies with documentation may present a major challenge
because: (1) some AI models, by their nature, are constantly
evolving based on continuous training; and (2) the requirements for
an AI solution may, depending on the industry and relevant use
case(s), be grounded in one or more of the existing frameworks and
standards, such as those based on the concepts of Responsible AI,6 or other similar
business-wide standards and governance processes that your
organization may adopt for AI technology.

Rather than relying on existing documentation, a technology
lawyer should collaborate with the relevant stakeholders to
identify a clear list of parameters by which the parties will
measure whether the AI tool or technology meets a contractual
standard. To do so, you may consider setting a quantitative target
or functional requirement for the AI tool or the output that it
generates. For example, performance warranties can be based on
availability (uptime) or predictive power of the AI tool, a
specified percentage in the accuracy, precision, or consistency of
the answers, or an increased speed of response to customer
questions. With respect to accuracy and precision of AI output in
particular, while a performance warranty is helpful, it may be
prudent for an organization to implement a separate verification
process or supplement the AI tool with a separate accuracy-checking
solution. As your organization establishes and advances AI
governance efforts, including by implementing the requirements of
trusted AI legal frameworks, AI agreements should take into account
developed standards and policies.

Trusted AI Legal Frameworks and Compliance With Laws

The simplicity of an ordinary course of compliance with laws
representation and its related indemnity belies the complexity of
regulatory changes in a growing number of jurisdictions. Key among
them are trusted AI legal frameworks emerging in the leading
proposed regulations in the European Union (including the AI Act7 described in the
Developments from Europe: New Laws Regulating Artificial
Intelligence, Data and Digital Operational Resilience chapter of
this book),8 as well as the United States (for example,
the White House’s Blueprint for an AI Bill of Rights9
and the National Institute of Standards and Technology’s
(NIST’s) Artificial Intelligence Risk Management Framework
(AI RMF 1.0)
10), and other countries (such as the
United Kingdom Information Commissioner’s Office Guidance on AI and Data
11 and China’s Draft Measures for the Management of Generative
Artificial Intelligence Services
12). Perhaps
surprising in their consistency, these emerging frameworks tend to
be modeled after the European Union’s AI Act, contemplating a
risk-based approach for regulating AI, with compliance requirements
driven largely by categorization of each AI use case into one of
four established categories—prohibited, high-risk,
medium-risk, or low-risk—with high-risk use cases triggering
the most extensive reviews and safeguards.

Beyond the AI-specific laws and legal frameworks, the principles
remain that: (1) responsibility for compliance with laws should be
allocated to the party that is in the best position to control the
relevant area and defend the claim and (2) the use of AI or
dependence on a third-party AI provider to satisfy legal
requirements does not change these underlying legal requirements.
But for a variety of reasons (key among them uncertainty and
relative leverage of the parties), contractual solutions to the
allocation of responsibility for compliance with laws in the AI
space vary significantly and must be considered on a case-by-case
basis. It would not be surprising if, in the near future,
contractual responsibility for compliance with AI laws were carved
out and addressed separately from the “general”
compliance with laws warranty (similar to the approach to data
protection laws), in part based on the need to address regulatory
requirements with specificity in the contract, and to supplement
them with ongoing operational reviews that may be more extensive
than what has been “operationalized” in connection with
data protection laws.


From business seminars to boardrooms, dealmakers are evaluating
the ways in which AI can streamline mission-critical processes and
generate value for companies. In parallel, businesses are racing to
develop internal “buffer” policies governing the use of
AI. As companies leverage AI tools, technology lawyers have a
unique opportunity to advise clients regarding the impact of AI on
technology deals, and to develop plans for its use that include
both contractual and operational safeguards. Ultimately, clients
will benefit from changes to traditional deal terms and novel
contractual clauses drafted for new, AI-specific considerations. By
considering the deal terms identified in this article, we can help
position our clients to realize the value of AI technology, while
identifying and mitigating relevant risks.


1. Kevin Roose, The Brilliance and Weirdness of
, N.Y. Times, December 5, 2022, at

2.Nico Grant and Cade Metz, Google Releases Bard, Its
Competitor in the Race to Create A.I. Chatbots
, N.Y. Times,
March 21, 2023, at

3. Jordan Novet, Microsoft’s $13 Billion Bet on
OpenAI Carries Huge Potential Along with Plenty of
, (April 9, 2023 at 10:40 PM EDT),

4. Jordan Novet, AWS Is Investing $100 Million in
Generative A.I. Center in Race to Keep Up with Microsoft and
, (June 22, 2023 at 6:33 PM EDT),

5. Richard Assmus and Emily Nash, Generative
Artificial Intelligence and Intellectual Property

6. Ayesha Gulley, Why We Need to Care About
Responsible AI in the Age of the Algorithm
, World Economic
Forum (March 22, 2023),

7. Draft of the European Commission’s proposed AI Act
(May 11, 2023) at

8. Ana Bruder, Oliver Yaros, and Ondrej Hajda,
Developments from Europe: New Laws Regulating Artificial
Intelligence, Data and Digital Operational Resilience


9. Blueprint for an AI Bill of Rights: Making
Automated Systems Work for the American People
, The White
House (October 2022) at

10. Artificial Intelligence Risk Management
, US Department of Commerce, National Institute of
Standards and Technology (January 2023) at

11. Guidance on AI and Data Protection,
Information Commissioner’s Office (March 15, 2023) at

12. Measures for the Management of Generative
Artificial Intelligence Services (Draft for Comment)
Cyberspace Administration of China (April 12, 2023) at

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article provides information and comments on legal
issues and developments of interest. The foregoing is not a
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