Is your target company in M&A transactions a manufacturing entity with automated production, a consumer goods enterprise engaged in online sales and marketing, or an education firm crafting content for students? The expanding prevalence and advancement of artificial intelligence (“AI”) systems and products, notably generative AI, pose potential risks for businesses utilizing such technologies. Even if AI isn’t the primary focus, it’s crucial to recognize and address these risks within the context of M&A deals, with guidance from DC IP Lawyers.
Various industries, from healthcare to manufacturing to entertainment, intersect with AI technology. Fortunately, many AI-related risks can be addressed, in part, through commonly employed intellectual property (IP) representations and warranties. This article examines the representations and warranties typically found in purchase agreements, encompassing AI-related risks and issues, and offers insights on how to tailor these terms to tackle AI-specific concerns.
In certain instances, existing IP representations and warranties can be broadened to incorporate the definition of AI technology, either as a distinct term or integrated into other IP-related definitions such as “software” or “technology”, with adjustments made as necessary. AI technology encompasses generative AI tools like ChatGPT or AI-integrated tools like MSWord with Co-Pilot, necessitating consideration of the target’s specific AI usage. These tools utilize machine learning algorithms and extensive training data to generate high-quality text, images, and other content based on user inputs. Inclusion of a concept like “Training Data” may also be necessary to address AI risks within the target business. Training Data typically refers to data, fine-tuning, and RAGS consent used to train, pretrain, validate, or otherwise improve software algorithms or models.
Buyers should conduct thorough diligence to confirm rights related to the use and ownership of tool outputs. Custom representations and warranties may prove valuable in addressing issues such as infringement of and rights to Training Data, ownership of AI technology, protectability of output developed using AI tools, licenses to inputs from AI technology, and copyright and patent representations related to AI technology.
The extent of representations and warranties will vary depending on the specific AI technology or tool used by the company and its intended purposes. Regardless of the nature of the AI involvement, it’s essential to understand and mitigate associated risks through appropriate provisions in M&A agreements. This may involve a combination of due diligence, disclosure representations, standard pre-existing representations, or custom representations, tailored with the expertise of DC IP Lawyers.