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| 3 minutes read

My supplier is using AI in the delivery of its services: considerations for in-house lawyers

As software tools and solutions powered by AI become more prevalent and accessible, they are more frequently being used “in the background” by service providers of all kinds, as part of the delivery of a wider service.

Think less of a service provider who is explicitly providing an “AI tool” or SaaS powered by AI as its actual main product, but more of a consultancy service provider who, perhaps, uses AI tools as part of its analysis of your business; or a creative design agency which is using generative AI to assist with the creation of designs, images, advertising copy or other deliverables for its customers.

If AI is being used by your supplier “behind the scenes”, do you know about it? Should you care? And how, if at all, should this be dealt with contractually? The FT reports that "understanding exactly how their companies use AI has become an essential first step for general counsels". This should arguably be expanded to also include the use of AI by certain of your key service providers, where the usage and outputs arising from it can have a direct impact on your business.

We are seeing more and more that use of AI by service providers is being dealt with expressly in the contract as a way of managing and, hopefully, mitigating risk for customers. Below is a brief checklist of some points for in-house legal counsel and procurement teams to consider.

  • Usage: Firstly, how do I know if AI is being used? Consider including an obligation on the supplier to notify you as the customer where a supplier is using an AI tool to provide the services (or, more narrowly, in connection with the creation/provision of the deliverables). What information should they provide about the usage? Details about the tool and how it is used? What data is it trained on? What inputs will it be given? On what terms are the outputs provided? Can you glean this information during the pre-contract phase?

  • Confidentiality: Perhaps most crucially, what (if any) customer data is being used as an input into the AI tool? Does it contain any confidential information or personal data? Consider express controls on usage of your data for this purpose (e.g. ensuring – if you do give permission for usage – that your data is not used to benefit competitors), which may need to be called out over and above what may already be covered in your confidentiality clause.

  • Licences: Does the supplier have the right to use the AI tool?...and the underlying data it is trained on? Does it have the right to provide you with the outputs? If so, what warranties or assurances will these outputs come with? Spoiler alert…likely not many, if any at all! How will this tally with the existing “licences and consents” wording which is typically included in such a contract?

  • IP Infringement: What assurances can the supplier provide around the AI outputs potentially infringing third party IPR? The likelihood of infringement obviously increases if, for example, a creative output has been wholly or partially generated based on publicly accessible scraped data. Does your existing “deliverables” definition and IPR infringement warranty and indemnity cover this?

Many of the above issues may already be covered – to a greater or lesser extent - by the existing template terms of your contract, but more and more customers are seeking to include specific terms or standalone clauses governing the use of AI tools by suppliers. This serves to specifically highlight the issue and – even if it may be technically covered by existing wording in some instances – if nothing else, having an AI-specific clause brings the issue to the supplier’s front of mind, hopefully thereby fostering tighter control and more considered use of these tools.

If you need assistance on the inclusion of AI-specific terms in your agreements or have any other queries regarding the legal implications of the use of AI, whether internally by your business or by your service providers, feel free to get in contact with our AI team here. For more AI-related content, visit our dedicated AI page here.

With the advent of ChatGPT, launched last November, companies have incorporated AI tools into their products, putting pressure on in-house lawyers to get up to speed with how the technology works in order to manage potential problems, in areas such as intellectual property.


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