Summary
- Businesses using AI tools must review terms and conditions carefully to avoid exposure to data breaches, intellectual property disputes, and unexpected costs.
- Key clauses to scrutinise include data protection and GDPR compliance, confidentiality, training data usage, intellectual property ownership, service levels, liability, and pricing structures.
- Providers often claim joint ownership of AI-generated outputs and may use input data to train their models, which can inadvertently benefit competitors.
- LegalVision’s business lawyers explain the key contractual clauses businesses should review before signing up for an AI tool.
Tips for Businesses
Review AI tool agreements before signing. Check how your data is stored, used, and protected under GDPR. Clarify who owns AI-generated outputs and whether your input data trains the model. Scrutinise liability caps, service levels, and the full cost structure, including usage-based charges, to avoid unexpected exposure.
Before signing up for an AI tool, you need to understand what you are legally agreeing to. The terms and conditions governing AI services can directly affect your data, your intellectual property, and your bottom line. This article will explore the key considerations when signing up for an AI tool, including the key clauses to look out for in the AI providers’ terms and conditions.
Personal Data and Confidential Information
You need to make protecting personal data your primary concern when adopting AI tools. Modern AI systems will process vast amounts of your business data, making it crucial to understand how the AI providers handle your data, particularly personal data. Look for specific commitments about data storage locations and whether they comply with relevant privacy laws in your jurisdiction, particularly the GDPR if you are operating in the UK or EU or handling UK or EU citizens’ data.
Pay particular attention to their data retention policies and breach notification procedures. Ask the AI provider to explain precisely how they protect and handle your data, and ensure their practices align with your privacy obligations and GDPR requirements. If they process personal data, ‘data processing’ clauses in compliance with the GDPR should be included in the AI provider’s contract with you.
Checks
When using AI tools, it is essential to consider confidentiality issues separately from personal data protection. For example, if you use AI for customer service, you must verify whether customer data will remain confidential. Many providers will use any input data to train their AI models, potentially exposing your sensitive information to other users of the AI tool. This could breach your confidentiality agreements with clients or reveal trade secrets.
Before implementing any AI tool, ensure that you check whether:
- personal data will be processed by the AI tool;
- if personal data is processed, whether the AI provider complies with GDPR requirements;
- robust confidentiality clauses are contained in the AI provider’s ‘Terms and Conditions’; and
- the AI tool will use any input data you provide to train its model (further explained below).
Training Data Usage Rights and Intellectual Property
When adopting AI tools for your business, it is crucial to understand how providers handle both your input data and the resulting outputs. These issues are closely linked and can have implications for your intellectual property. You must understand precisely how they intend to use your data. The provider should clearly explain their data anonymisation procedures and any restrictions they place on competitive use. Look for specific opt-out options and data deletion rights within the agreement.
Consider the following scenario: You input industry-specific information to generate specialised content. The provider might use this data to train their model, potentially helping your competitors who use the same tool. Ensure you understand and feel comfortable with how your data contributes to the AI’s learning process. Request specific protections around competitive information if needed.
Agreement Wording
Your agreement should eliminate any ambiguity about who owns the outputs created by the AI. Pay attention to the licensing terms for the underlying AI technology and understand your rights to create derivative works from AI-generated content. Many businesses wrongly assume they will own all AI-generated content.
In reality, providers often claim joint ownership or reserve broad licenses to use these outputs. This can lead to situations where your proprietary information, fed into the AI as training data, could indirectly benefit competitors through improved AI models or broadly licensed AI-generated content.
Review the terms of the AI tool carefully and negotiate changes if they conflict with your intended use of the AI-generated materials or if they could compromise your intellectual property. Seek clear provisions that protect your proprietary information and ensure that any unique insights or data you provide to the AI tool remain confidential and do not inadvertently benefit your competitors through the AI’s learning process or output licensing.
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Service Level Agreements
You must understand what level of service you can expect from your AI provider. Look for specific commitments about system availability, response times, and maintenance windows. Ensure you know what technical support you will receive and how quickly the provider will address issues. Most providers offer their AI services “as is” with limited guarantees about output quality.
This factsheet outlines the steps for notifying the ICO and affected individuals about personal data breaches.
Think carefully about whether these limitations work for your business case. If you plan to rely heavily on the AI tool, you might need to negotiate stronger performance guarantees.
Liability and Indemnification
AI tools can make mistakes that seriously impact your business. Your agreement must address who bears responsibility when things go wrong. Most providers try to limit their liability to the fees you have paid, but this might not cover your potential losses from AI errors.
Usage Restrictions and Costs
You must clearly understand what you can and cannot do with the AI tool. Many providers prohibit use in high-risk scenarios or regulated industries. The agreement should spell out your permitted use cases and any user limits. Beware of geographic restrictions that might affect your global operations.
The pricing structure for AI tools often includes hidden complexities. Beyond the base subscription fee, you might face charges for API calls, storage, or excessive usage. The provider should clearly explain all potential costs and their price increase mechanisms. Understanding the complete cost structure helps you avoid budget surprises as your usage grows.
Key Takeaways
When implementing AI tools in your business, you must carefully evaluate the legal and operational risks. Before signing any AI service agreement, understand how the provider will protect your data. Secure appropriate intellectual property rights for AI-generated content. Verify the service levels meet your needs. Assess whether the liability protections adequately cover your risks. Confirm the usage terms align with your business plans.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced data, privacy and IT lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The ownership structure depends on your specific agreement. While you might own individual outputs, providers typically retain rights to their AI models and often claim rights to use or learn from your generated content.
Most AI service agreements let providers modify their terms with notice. You should review the amendment provisions carefully and ensure you can terminate the agreement if you do not accept their changes.
Check whether the provider uses your input data to train its AI model. If so, sensitive business information could reach competitors. Seek robust confidentiality clauses and opt-out rights before signing any agreement.
Most providers limit their liability to fees you have paid, which may not cover your actual losses. Review indemnification clauses carefully and negotiate stronger protections if your business relies heavily on the tool.
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