This update is part of our AI FAQ Series. Learn more at our AI Law Center.
Is AI a concern in M&A deals and venture capital financing transactions?
AI can raise a variety of concerns in M&A and venture capital financings, including:
- AI Governance and Risk Management:
- Has the target company established processes, personnel and technologies for assessing the ethical, legal and contractual compliance of AI systems and overseeing their development and use?
- Does the target have all proper authorizations, licenses, consents and other rights in the data it uses to train its AI models?
- What are the target’s key third-party AI dependencies, and how are the tools being used internally or in the company’s products and services?
- What obligations are imposed by the target’s internal- and external-facing policies concerning AI, and is it abiding by them?
- What internal mechanisms are in place to understand, communicate and manage the company’s position on acceptable AI use and development?
- AI Intellectual Property:
- Has the target company implemented controls to restrict and protect data that is considered a trade secret or subject to confidentiality obligations with AI technologies?
- Does the target’s overarching IP strategy align with the lack of protections that may be afforded by using generative AI technologies?
- Do the target company’s vendor agreements protect the confidentiality of the target’s data, or do they grant any rights to the vendor to own or use the data?
- Does the target company’s AI policy support ownership of intellectual property rights of core technology assets notwithstanding the use of AI?
- AI Liability:
- Has the target company appropriately allocated rights and risks between customers and suppliers of AI tools?
- Does the target understand and control for potential liabilities arising from AI development and deployment, especially regarding consumer harms, privacy violations, security compromises, hallucinations, and ethical and bias issues?
- Has the target received or given indemnifications to third parties (including customers and providers of AI tools)?
- Does the company develop, deploy or otherwise use AI tools that result in automated decision-making or are a substantial factor in impacting consumer’s legal rights (e.g., employment, insurance, financial products), and has it implemented all legally required controls for such technologies?
- AI Marketing & Public Filing Claims:
- Are the target company’s marketing claims regarding its AI capabilities exaggerated or accurate?
- Has the target company ensured its SEC disclosures or any other public filings about AI benefits are accurate?
Additional considerations for emerging companies are detailed in our Emerging Companies AI FAQ. For later-stage companies, this update shares 10 steps to consider when investigating the acquisition of a company that uses or develops AI technologies.
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