Tech & Sourcing @ Morgan Lewis

A company licenses an artificial intelligence–enabled service after evaluating its functionality, security, performance, and compliance characteristics. Six months later, the provider upgrades the underlying model or replaces it altogether. The product may look the same, but the technology beneath it may have changed in ways that affect performance, data processing, regulatory compliance, or the customer’s downstream obligations.

When an M&A transaction closes, the buyer will typically be unable to stand up its own IT environment on day one. In this scenario, the seller often continues operating existing IT systems, provides access to employees who understand them, and delivers data needed for the transition for a period after closing to assist the buyer in eventually operating a standalone IT environment of its own.

A teenager opens an app. The feed is personalized based on earlier activity. The next video starts automatically. A companion chatbot remembers yesterday’s conversation. To the user, these may appear to be features of one service. Under a new package of California laws, they are separate design choices that can carry different compliance obligations.

As artificial intelligence (AI) becomes increasingly embedded in development services, outsourcing arrangements, and other commercial and technology transactions, customers and vendors are confronting a deceptively simple question: How should risk be allocated when a deliverable is created using AI?

Modern brand partnerships raise contract questions around exclusivity, reputational risk, how influencer and celebrity content can be used after it is posted, and how the parties will measure performance. Part 2 of this Contract Corner series examines how parties can address those issues in their agreements.

Brand partnerships are expanding beyond traditional sponsorships and celebrity endorsements into arrangements that can combine licensing, content creation, product development, distribution, and data sharing. As those relationships become more complex, contracts need to clearly define the partnership, control of brand assets, and what happens to jointly created materials when the relationship ends.

As a follow-up to Part 1, in which we discussed increased reliability on sourcing teams’ input for commercial negotiations, this Part 2 discusses additional common provisions sourcing teams should consider in their oversight and management of the contracting process.

Sourcing teams are assuming increasing responsibilities in the contracting process, playing a central role in managing an array of issues, including legal, operational, financial, and information security risks. In an effort to streamline contracting lifecycles and reduce legal costs, companies often prefer legal counsel to focus on complex issues around intellectual property rights, indemnification, or regulatory compliance. This often leaves important unresolved issues to be negotiated by the sourcing team.

Fortunately, by focusing on certain terms of outsized impact that arise across deals, sourcing departments can contribute significantly to managing their companies’ risk profiles.

While a freedom-to-operate (FTO) analysis often centers on patent or trademark searches, contractual commitments can establish the practical boundaries—or maze—of a company’s degrees of freedom. Organizations with a checklist of high-level issues to be addressed during contract discussion and negotiation (such as liability, compliance, and data protection) should consider adding FTO to that list. With a more holistic perspective of the FTO landscape and with business and technical teams’ input, commercial counsel can find creative ways to complete the puzzle.

Global outsourcing transactions often require companies to navigate not only complex commercial issues, but also employment-related regulations and local practices that can vary significantly across jurisdictions. As organizations continue to transform their operations through outsourcing, managed services, and digital and AI transformation initiatives, labor and employment considerations have become an increasingly important part of transaction planning. Partner Kat Gibson advises multinational companies on the employment issues that arise in outsourcing transactions, including employee transfers, workforce restructurings, reductions in force, consultation obligations, and cross-border employment compliance. We recently sat down with Kat to discuss some key labor issues companies should be thinking about when planning global outsourcing transactions.