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Contractual Considerations for AI-Enabled Software Providers


As artificial intelligence (AI) continues to revolutionize the software industry, its deployment in product stacks, including third-party AI services, may necessitate explicit terms and conditions in user agreements. By clearly stating these terms, software providers can ensure the correct use of AI, protect their interests, and comply with legal and ethical guidelines, while providing users with transparency regarding data handling.

1. Ensuring Legal Compliance and Protecting Rights: AI can process vast amounts of data, potentially including third-party content or information. It's vital for users to secure permissions from parties whose data could be affected by the AI service. This provision ensures legal compliance and respects third-party intellectual property rights, placing the onus of data legality on the user and protecting the software company from inadvertent violations.

2. Clearing Rights to Use Data: AI services often improve through learning from user interactions and data. Consider whether your agreements should grant your company a license to utilize user-generated content for improving service performance and developing new offerings. Such a clause could protect your company's interests and allow continuous refinement of the AI and other services, leading to a better product experience.

3. Third-Party AI Service Acknowledgement: As AI-based services often rely on third-party technologies, it's crucial to ensure users understand the involvement of these parties and their respective terms of service. Contractual terms could be used to protect a software provider from liabilities arising from third-party actions or service availability, a vital safeguard given the often complex network of dependencies in the AI ecosystem.

4. Acceptance of AI Risks: AI use can entail unpredictability, including potential biases or errors. Having users acknowledge these risks underscores the dynamic and evolving nature of AI technologies, setting realistic expectations. Responsibility for validating AI-generated content can be allocated to users, protecting the provider from claims related to inaccurate or unsuitable outputs.

5. Respective IP Rights: Where AI is involved, intellectual property right considerations can quickly get complicated, particularly with respect to copyrights (additional commentary on this subject can be found herehere, and here). It may be appropriate to make these complexities clear to your counterparties, including that you make no representations with respect to their rights to any output. You may also want to memorialize your own intellectual property rights in any output or other aspects of AI services and tools.

6. Limitation of Liability: Clear limits to the software provider's liability, especially regarding third-party AI services, can be used to insulate the provider from potential legal disputes or financial liabilities stemming from AI use.

7. Implementing Additional Terms. Adding terms to your form documents for new customers and counterparties is simple. But how do you impose additional terms on existing counterparties? 

  • If you have a clickwrap or similar agreement that allows you to unilaterally change terms, then you should be able to update terms by following the corresponding process established in your existing terms (assuming the terms and process are consistent with applicable law in the corresponding jurisdiction). 
  • With respect to existing contractual counterparties where there is no unilateral amendment right, it is more complicated. 
    • One option, to the extent practical, is to condition access to the AI services on agreement to the supplemental terms that govern them. 
    • If you need to roll out the AI services regardless of whether or not the counterparty is willing to agree to the additional terms, you can consider using the next renewal date of the contract as an opportunity to condition renewal on agreement to the supplemental terms.

Incorporating these concepts into applicable agreements not only provides legal and financial protections for software providers, but also offers transparency to users about their rights, responsibilities, and the potential risks associated with AI use. If you are integrating artificial intelligence into your software product, particularly third-party AI services and tools which you do not fully control, you should consider the need for supplementing your existing agreements and terms to address the unique issues and risks presented by AI that may not already be addressed.