Artificial intelligence is not only reshaping the way the world works, but also how business is done. 

Companies that plan to integrate AI products and services or license their own AI-powered services to others must fully understand the potential legal risks in artificial intelligence contracts. 

That means understanding the key clauses to include in AI agreements to protect your interests.

As a premier legal partner for Bay Area technology companies, SVTech regularly advises our clients on AI agreements and how they affect relationships with vendors and partners.  

Below, we'll discuss the most essential AI contract terms for entering into a successful AI agreement. 

Key Clauses to Include in AI Agreements

Agreements involving AI technologies must address the legal risks in artificial intelligence contracts related to data use, intellectual property, liability, and regulatory compliance. 

These are the most important AI contract terms to include to safeguard your business:

Data Ownership and Usage Rights

Artificial intelligence requires vast amounts of training data, but there are serious questions that must be clarified before entering into AI agreements. Who owns the input data, and who owns the output?

Why it matters: Without data ownership terms in AI agreements, disputes can arise over how data may be used to train models and who owns the outputs.  

Scope of AI Usage

Whether you're entering into an AI licensing agreement to use another company's technology, licensing your own AI models for use by a third party, defining the accepted usage of the AI is essential. AI contract terms should always specify who may use the AI system, how they can legally use it, and the specific business purposes of its use.

Why it matters: AI tools can be used in a variety of ways, even ways that are not originally intended. Scope of usage is a key clause to include in AI agreements to prevent unauthorized usage or misuse of the technology, and limit exposure to regulatory violations. 

Intellectual Property Rights AI for Outputs

AI can generate many different types of output, ranging from text to images, videos, and even functional computer code. With its capabilities only increasing, IP protection for AI-generated content is an essential part of AI agreements.

Why it matters: Traditional IP laws were designed for human outputs, and it remains unclear how they apply to AI-generated output. AI agreements should specifically address this issue, or organizations risk difficulty commercializing outputs and even possible infringement of the IP of third parties.

Model Training and Improvement

Whether you are a licensor or licensee, an AI licensing agreement should specify restrictions on what types of data can be used to further train or improve AI models. 

Why it matters: Model training often involves customer data, and if done without consent, can expose parties to potential compliance violations. Clauses around model training and refinement are necessary to prevent the exposure of confidential, proprietary information and trade secrets. 

AI Licensing

Licensing AI technology can take several different forms, including exclusive/non-exclusive, transferable, and sublicensable agreements. These restrictions are necessary to keep control over who uses AI technology, and who has access to future model updates and versioning.

Why it matters: Without including specific restrictions in AI licensing agreements, a licensee may try to sublicense your technology to an unvetted third party. Unclear licensing agreements can also lead to issues when trying to transfer or sell products that use AI technologies. 

Data Privacy

Clauses around data privacy in AI contracts help ensure that personal or sensitive data is handled in compliance with privacy laws like GDPR, CCPA, and HIPAA. 

Why it matters: Data privacy is a serious matter and violations can carry significant regulatory fines. Provisions regarding data privacy in AI contracts are essential to ensure that each party understands their responsibilities for data protection, and that they are held accountable for breach of privacy laws. 

Performance Standards

AI technology can and does make mistakes, which makes it critically important to establish expectations for what is an acceptable level of accuracy and reliability. AI contract terms must also address potential bias and what happens when an AI system produces significant errors.

Why it matters: Without specific AI contract terms addressing limitations and the potential for mistakes, disputes can arise over incorrect or biased outputs, and who is responsible for them. This can also lead to potential litigation, without clauses directly addressing these possibilities in the contract. 

Indemnification and Liability

Indemnification clauses allocate responsibility for third-party claims around damages caused by AI errors, misuse, and compliance violations. Most licensors of AI technology try to limit indemnification clauses to IP infringement. In return, they often expect licensees to indemnify them for other claims related to output. 

Why it matters: AI presents unique risks that become more likely as the technology scales. Without indemnification clauses, it can be unclear who is ultimately responsible for damages resulting from AI IP infringement or other errors and misuse. Properly structured indemnification clauses protect both parties and minimize disputes. 

Termination and Data Retention

Clear guidelines are needed to specify what happens to data, models, AI-generated content when an agreement ends or is prematurely terminated. Is ownership of these materials transferred back to the licensor, or are they deleted?  

Why it matters: Without specific terms in AI agreements regarding exit strategies, data and models may continue to be used long after an agreement has ended. This can expose a party to compliance risks and IP infringement. AI contracts should provide for audits or verification of deletion to ensure the relationship is fully disengaged.

How AI Agreements Differ From Traditional Software Agreements

Whether it's evolving models, potential sensitivity of training data, probabilistic outputs, or unsettled IP laws, the nature of AI makes AI agreements far different from standard boilerplate software agreements. 

These complexities make specialized legal review for AI contracts a necessity. With the help of experienced, technology-focused legal counsel, your organization can translate the inner workings of AI systems into concrete, enforceable AI contract terms that protect your interests.

At SVTech, we help organizations:

• Identify the legal risks in artificial intelligence contracts

• Clarify IP protection for AI-generated content

• Establish data ownership terms in AI agreements

• Negotiate liability and indemnity clauses for AI errors and misuse

• Ensure regulatory compliance with data privacy laws

This ensures that your contracts and AI licensing agreements accurately reflect how the technology will be used, establish its limitations, and protect your intellectual property rights to safeguard your interests.

SVTech: Your Trusted Partner in AI Contracts

AI technologies are reshaping the business world, and the impact of this technology will continue to evolve for years to come. Before you enter into any AI agreement, it is vitally important to understand the inherent legal risks in artificial intelligence contracts.

By understanding the risks, you can effectively negotiate the key clauses to include in AI agreements, so that your organization is legally protected and can enter into a prosperous relationship with vendors and third parties.

SVTech has served the legal needs of technology companies in the Bay Area for over 25 years. We understand the impact that AI technology has already made on the business world, and the risks and challenges that it brings. 

Contact SVTech today for an initial consultation, and let our experience help you minimize the legal risks in artificial intelligence contracts.

**Disclaimer**

The information provided in this blog post is for informational purposes only and does not constitute legal advice. Please consult with a qualified attorney to address your specific legal needs.