Considerations for Handling AI Licensing and Related Data in Tech Contracts: The Vendor's Perspective

Venable LLP

Venable LLP

Before rolling out a new artificial intelligence (AI) tool to customers or using one internally for other business purposes, prudent vendors will look to their form agreements related to the underlying AI technology to confirm whether their legal terms are sufficient. Here, we briefly discuss some common terms in tech contracts that vendors may consider adjusting based on their use of AI.

Data Rights Terms

Most software contracts address data in some way. Typically, a vendor will state that its customers own any data they upload via the software and will carve out limited use rights (e.g., for the vendor to provide the software and services). But where such vendor use rights are too limited, vendors may inadvertently breach their contracts when using customer data in connection with an AI tool.

So, vendors should specifically look to their data terms and consider whether their forms should be updated to broaden their rights to use customer data to better support their new AI tools.

Legal Compliance Terms

Even if a vendor's contract includes the rights necessary to use its customers' data with an AI tool, rights clearance is not ensured. Customer data can consist of other downstream consumer data, including personal information. To the extent privacy laws are implicated, vendors may find themselves unknowingly violating fragmented privacy laws based on how their customers collect their data.

So, vendors should place the legal responsibility (e.g., for obtaining consent, etc.) on their customers for a vendor's use of any customer data as permitted in the vendor's tech contract.

Intellectual Property Ownership Terms

In the case where a vendor's generative AI tool is licensed to customers, ownership of any output generated by customers will likely be negotiated. And in the event a vendor uses only its form tech contract that has not been updated to fit an AI tool, the old IP ownership terms may unintentionally vest ownership of the output in the customer (e.g., via a broad "Deliverables" definition). Even if a vendor agrees with vesting ownership in the customer, the terms may still need to be adjusted to avoid vesting ownership in the AI tool itself.

So, vendors must review and adjust any IP ownership terms to avoid any unintended ownership consequences. But vendors should keep in mind that rights over output generated solely by an AI tool will be limited to contractual enforcement rights, because such output is not copyrightable or patentable under current law.

This summary is not intended to be exhaustive, and additional terms may require modifications, depending on the use of the AI tool, the data involved, and the vendor's tech contract package.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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