Key Considerations When Acquiring Artificial Intelligence Systems: A Guide for Buyers
At Fox & Moghul, we have extensive experience guiding clients through the intricate process of buying and implementing AI systems. The complexity of these transactions often presents unique challenges that require careful legal and contractual planning. This blog highlights the key issues that buyers should look out for when acquiring AI technology, helping you avoid common pitfalls and secure your investment.
Data Ownership Provisions
One of the most crucial aspects of acquiring an AI system is clearly defining data ownership rights. An AI system relies heavily on the data inputted into it and the outputs generated from it. Without well-drafted data ownership provisions, your business may face legal challenges when trying to use, modify, or commercialize the AI’s outputs.
Key Issue: Who owns the data inputted into the AI system? Who has the rights to the output generated by the AI?
Best Practice: Ensure that the contract explicitly states that your business retains ownership of all data it inputs into the AI system, as well as the rights to use and control the outputs. This prevents disputes and gives your company the flexibility to use the AI-generated data for future business needs.
Data Security Provisions
AI systems often handle sensitive information, including personally identifiable information (PII) and confidential business data. Without strong data security provisions, your business could be at risk of data breaches and unauthorized access, which can result in costly litigation and regulatory penalties.
Key Issue: How will the vendor protect your business’s sensitive data? What cybersecurity measures are in place?
Best Practice: Include detailed data security provisions in the contract that outline the vendor’s responsibilities for protecting your data. This should cover encryption, data handling protocols, compliance with industry standards, and regular security audits. Make sure the vendor’s cybersecurity measures align with your own business’s requirements to mitigate the risk of data breaches.
Vendor’s Representations and Warranties
When acquiring an AI system, it’s crucial to include strong vendor representations and warranties. These provisions protect your business by requiring the vendor to guarantee that the AI system will perform as promised, is free from defects, and does not infringe on any third-party intellectual property rights.
Key Issue: What happens if the AI system doesn’t perform as expected, or if it infringes on someone else’s IP?
Best Practice: Include representations and warranties that cover the AI system’s functionality, accuracy, and compliance with applicable laws. Additionally, require the vendor to provide warranties related to the ethical development of the AI system, including assurances that it has been trained on unbiased data.
Vendor’s Indemnity Obligations
Indemnity provisions are a critical part of any technology contract, and this is especially true for AI systems, where the buyer often has limited control over the underlying technology. Vendor indemnity obligations ensure that your business is protected from liabilities arising from the vendor’s actions, such as intellectual property infringement or data breaches.
Key Issue: Who will bear the costs if the AI system infringes on third-party rights or suffers a data breach?
Best Practice: Include comprehensive indemnity clauses that require the vendor to cover all costs and damages related to legal claims resulting from their AI system. This protection is vital, as it shifts the risk of potential legal issues back to the party best positioned to address them—the vendor.
Bias Mitigation
AI systems are only as good as the data they are trained on. If the training data is biased, the AI system may produce discriminatory or inaccurate outputs, which can lead to legal liability and reputational damage for your business. Bias mitigation provisions help ensure that the AI system operates fairly and in compliance with anti-discrimination laws.
Key Issue: How can your business ensure that the AI system does not produce biased or discriminatory outputs?
Best Practice: Require the vendor to provide evidence of bias mitigation practices, such as diverse training datasets, regular algorithm audits, and adherence to ethical AI development standards. Include language in the contract that obligates the vendor to correct any identified biases at their own expense.
Vendor’s Liability
Clearly defining the vendor’s liability is essential to protect your business from unexpected risks. An AI system’s performance can impact your business operations significantly, so it’s crucial to ensure that the vendor assumes responsibility for any issues arising from the system’s use.
Key Issue: What liability does the vendor bear if the AI system causes harm or fails to perform?
Best Practice: Stipulate that the vendor’s liability covers all potential issues, including defects in the AI system, data breaches, and legal claims from third parties. Limitations on the vendor’s liability should be minimized to the extent possible, especially for critical functions like data security and IP compliance.
Key Questions to Ask Before Acquiring an AI System
To further safeguard your investment, consider these key questions before finalizing your AI acquisition contract:
- Data Input and Protection: What types of data will be inputted into the AI system? What additional data protection measures are required?
- Transparency and Ethics: How transparent is the vendor regarding the sources of training data? Does the vendor have ethical safeguards in place to ensure unbiased outputs?
- Security Standards: What are the vendor’s cybersecurity measures, and do they align with your business’s security requirements?
- Vendor’s Reputation: Has the vendor faced any legal challenges or regulatory investigations? What is the feedback from other clients who have used the AI system?
Conclusion: Navigating the Complexities of AI Acquisitions with Fox & Moghul
Acquiring an AI system involves navigating a complex landscape of legal, technical, and ethical considerations. At Fox & Moghul, our experienced business lawyers understand the intricacies of these transactions and can help you draft, review, and negotiate contracts that protect your interests and maximize the value of your investment.
With a track record of successfully guiding clients through technology acquisitions, we are well-positioned to provide the expert advice you need to avoid costly mistakes. Contact us today to schedule a consultation and ensure that your AI acquisition is handled with the highest level of expertise.
