Tech & Sourcing @ Morgan Lewis


It is no secret that usage of artificial intelligence (AI) technologies continues to expand at a rapid pace. In fact, Flexera’s 2023 Tech Spend Pulse, which is based on a survey of 506 information technology executives across the world, found that investments in AI technologies are surging to a 68% planned increase in use. That figure was the highest of all technologies in the survey.

As a result, it is likely that many legal and sourcing teams are now regularly finding contracts come across their desks where AI is an actual or potential tool for use in connection with the services.

We have been tracking these trends and have previously written about AI in many contexts, including due diligence issues, copyright risks, and a prior Contract Corner containing contracting pointers for services agreements.

This Contract Corner builds on our prior post and adds a few additional considerations and tips when contracting for services that may involve the use of AI. These tips are important even if AI is not a fundamental element of the services procured.

Consent and Conditions for AI Use

In addition to taking the required steps to understand how AI is or may be used with respect to the services the company is contracting for, companies should consider adding a provision that requires the company’s consent before any AI is actually used in connection with the services or the creation of any deliverables.

This may be especially important if AI is not a central component of the services themselves. For instance, in a typical managed services arrangement, the customer may not expect that the provider’s service delivery personnel are using generative AI tools to create deliverables. Adding a consent requirement would add some contractual protection for the customer to help mitigate the risks that come with the use of such tools.

As further protection, it is a good idea to condition any such consent and use of AI on the provider’s ability to represent that it (1) has full rights and licenses to such AI products and services, (2) obtains all intellectual property rights to the output of or from such products and services, and (3) that it may transfer such ownership of such output to the customer if included in any deliverable.

Use of Data

Data use is another key area to proactively address in order to prevent future issues and headaches. AI tools and services, particularly generative AI, largely depend on the data that is used to train the underlying model. If not handled properly, a company’s competitive or sensitive data could be used to train an AI model that is then leveraged for the benefit of that company’s competitors.

Similar to restrictions on aggregating or commingling data, customers should consider adding to service agreements an express restriction on the provider’s use of their data in AI products or services, including in connection with training or fine-tuning an AI model, without the customer’s prior consent.

Watch Out for Hidden Terms

A common feature of cloud services or other “as-a-service” agreements is the use of supplemental or hyperlinked terms and conditions. It is important for customers to perform the proper due diligence on the types of terms that may be contained outside the four corners of a contract but incorporated by reference. For example, a cloud service provider may offer an AI service that can be purchased through a customer portal or dashboard. While not contemplated at the initial contracting stage, the act of purchasing this service offering might trigger the inclusion of additional terms and conditions that either override the agreement’s original terms or add unexpected risks, obligations, or restrictions on the customer.

As always, it is critical to be aware of this possibility and either address the issues upfront or have policies in place to properly add these types of service offerings at a later date while implementing appropriate contractual protections.

We will continue to monitor trends and developments when contracting for AI tools or services that may involve the use of AI. Stay tuned for additional contracting pointers in future posts.