Litigation Perspective: Strategies for Licensing Software that Leverages Artificial Intelligence

As software products and services increasingly take advantage of the emerging capabilities of artificial intelligence (AI), software developers and companies that license software face evolving legal risks and contractual considerations. Software developers and licensees that fail to negotiate clear software license agreements that account for unique aspects of licensing AI-powered software may find themselves facing unexpected liability or costly software license dispute litigation. When drafting and negotiating software license agreements, parties should carefully consider the legal implications of developing and using software that incorporates AI.

Software developers and licensees encounter two common types of AI-powered software products implicated in licensing agreements: (1) software products that leverage third-party AI services hosted offsite; and (2) software products that leverage custom-built AI, deployed either in the cloud or within on premises infrastructure. Each type of AI integration gives rise to important strategic considerations and risks that stem from using AI services, including intellectual property rights, data privacy, security and breach concerns, gatekeeper responsibilities, service performance guarantees, and evolving legal and regulatory landscapes. In this article, we discuss important issues parties should consider when negotiating master service agreements (MSAs), statements of work, and other license agreements that involve AI. This article also offers insights and recommendations to proactively manage risks and negotiate favorable contract terms.