Artificial intelligence (AI) has rapidly evolved from a tech buzzword into a business essential. Whether it’s powering automation, chatbots, data analysis, or decision-making tools, AI is increasingly being built into commercial contracts, often subtly, but with significant legal implications.
As businesses race to adopt AI to streamline operations and reduce costs, it’s critical to ensure the contracts governing its use are watertight, balanced, and future-proofed. Here’s what you need to know, and why expert legal advice is no longer optional.
What is AI and Why Is It In Contracts?
AI refers to computer systems that can perform tasks typically requiring human intelligence such as decision-making, pattern recognition, or natural language processing. In commercial settings, AI may be used to analyse customer data, or even automate service delivery.
When entering into contracts involving AI (whether you’re providing it or using it), clauses must account for how the AI functions, who is responsible for its output, and how risks are allocated.
Legal Risks and Uncertainties Surrounding AI
Despite its benefits, AI raises several unresolved legal questions:
• Accountability: Who is liable if an AI tool makes an error or causes harm?
• Transparency: Can the AI’s decision-making process be explained and understood?
• Data Protection: Is the AI processing personal data in a GDPR-compliant way?
• Intellectual Property: Who owns content or insights created by AI?
Many contracts fail to deal with these issues adequately, creating commercial and reputational risk for both suppliers and customers.
Key Considerations for Service Providers
If you’re supplying AI-powered solutions:
• Clearly define functionality: What does the AI do and what doesn’t it do?
• Performance warranties: Be careful when promising accuracy or outcomes.
• IP ownership: This is a major area of risk. If your team is using AI tools (e.g., for generating text, code, or designs), you may not be able to transfer ownership of the resulting content, which can be a serious issue for clients expecting full IP rights.
• Employee use of AI: Be aware of what tools your employees are using, particularly in creative or client-facing work. The use of AI without proper controls could lead to ownership disputes, breach contractual obligations or incorrect information.
Key Considerations for Customers
If you’re buying or using AI technology:
• Clarity on outputs: Understand what the AI will deliver, how reliable it is, and whether human oversight is required.
• Data handling: Ensure the provider complies with data protection law and that you retain control over sensitive or proprietary data.
• IP ownership: Be clear on who owns the outputs generated by AI. If you’re paying for bespoke content or materials, you’ll want to make sure you can legally use, modify, and commercialise them.
• AI training concerns: Many businesses are now restricting how their content and data can be used by service providers, especially to prevent it from being used to train third-party AI models. These restrictions should be built into the contract from the outset.
Berry Smith’s Bottom Line
AI is transforming the way businesses operate and the way contracts need to be written. Getting your AI clauses right isn’t just good housekeeping, it’s essential risk management.
At Berry Smith, we work closely with clients to:
• Draft bespoke contracts
• Negotiate clear and fair liability terms
• Protect intellectual property and ownership rights
• Ensure compliance with data protection and regulatory requirements
• Future-proof agreements as the technology, and the law, evolves
Without expert input, businesses risk entering contracts with hidden liabilities, unclear obligations, or unenforceable terms.
Whether you’re procuring AI tools or providing them, our Commercial Team can help you navigate this fast-moving area with confidence. contact them today on 02920 345511 or at commercial@berrysmith.com.