Here’s a scenario that plays out constantly in growing businesses. A developer starts using an AI coding assistant. A marketer signs up for an AI content tool. A founder activates new AI functionality within an existing platform. Within hours, an AI provider has access to commercially sensitive data and, in most cases, the terms and conditions have never been read.
This is not carelessness. It’s the reality of how AI enters businesses. But it creates legal and commercial exposure that can be very difficult to reverse.
WHAT TO WATCH FOR IN AI SUPPLIER AGREEMENTS
- Data use clauses – Many AI tools reserve the right to use your inputs including customer data and proprietary business information to train their models. You may be feeding a competitor’s future product without knowing it. Before using any AI tool with sensitive data, check whether your inputs are retained and how they may be used.
- IP ownership – Some agreements assign ownership of AI-generated outputs to the supplier, not to you. If your product relies on AI-generated content or code, this matters enormously; particularly when investors start asking questions.
- Liability caps – AI supplier contracts frequently limit liability to a fraction of the fees paid. If an AI tool causes a significant business problem such as a data breach, a flawed customer output or a discriminatory recommendation, your contractual recourse may be minimal.
- Audit and transparency rights – You may have little or no right to understand how the AI is making decisions that affect your business or your customers. As regulators and investors increasingly demand explainability, this gap can become a serious problem.
WHAT SHOULD YOU DO?
- Create a simple register of every AI tool your business uses, including tools adopted informally by individual team members.
- Review the key terms of your most important AI supplier agreements; particularly data use, IP ownership and liability provisions.
- Establish an appropriate approvals process so future AI tools are reviewed before adoption, not after.
So before signing any AI supplier agreement, ask yourself: “Would we be comfortable explaining thus arrangement to a customer, investor or regulator?” If the answer is no, get it reviewed.
FURTHER INFORMATION
Our Corporate & Commercial team advise firms on a wide range of AI-related matters. If you would like to know more, please do get in touch with Chris who will be happy to help.
