AI is no longer just a tool for tech giants. Every day, small and mid-sized companies are using AI for everything from customer service to data analysis and marketing. The potential for growth and efficiency is enormous, but so are the legal risks. If you are a business owner, understanding these risks and knowing how to manage them is essential for protecting your company.
In June, Microsoft was sued by a group of authors who claim their copyrighted books were used without permission to train AI models. Any business that uses AI-generated content relies on third-party vendors could find itself entangled in legal disputes over data privacy, intellectual property, or algorithmic bias.
Let’s break down the three biggest legal risks you need to watch out for.
Data Privacy Risks
Many AI systems use a vast amount of data, sometimes including personal or sensitive information about your customers, employees, or partners. New York enforces strict data privacy laws, and the federal landscape is evolving rapidly. If your AI tool collects, processes, or stores personal data, you must make sure you are following all applicable regulations. A single mistake can lead to hefty fines, lawsuits, and loss of customer trust.
Intellectual Property
The Microsoft lawsuit is a perfect example of how complicated this issue has become. Who owns the output of an AI system? Are you infringing on someone else’s copyright or patent by using a third-party AI tool? Many businesses assume that if they pay for an AI service, they own the results. That is not always the case. Failing to address IP issues up front can lead to costly litigation.
Algorithmic Bias
AI systems can unintentionally perpetuate or amplify bias, leading to discriminatory outcomes in hiring, lending, or customer service. Regulators in New York are paying close attention to this issue, and businesses found to be using biased AI systems can face lawsuits, regulatory penalties, and public backlash. Even with good intentions, your business can still be held accountable for the outcomes of AI-driven decisions.
How To Protect Your Business
Conduct a legal audit of your AI systems: Before deploying any AI tool, review how it collects, uses, and stores data. Are you obtaining proper consent? Are you following all relevant privacy laws? A legal audit can identify gaps and help you implement necessary safeguards.
Update your contracts: If you are using third-party AI vendors, make sure your contracts include detailed data protection clauses, clear IP ownership terms, and indemnification provisions. Do not rely on templated agreements. Customize them to address the unique risks of AI. Corporate law attorneys can help clients renegotiate contracts to ensure they retain ownership of their data and the outputs generated by AI.
Implement responsible AI policies: Develop internal policies for the ethical and responsible use of AI. This includes regular testing for bias, transparency in decision-making, and clear procedures for handling complaints or errors. Document your efforts to prevent bias and be prepared to explain your processes if regulators or customers ask.
Train your team: Your employees are your first line of defense when it comes to AI legal risks. Provide training on data privacy, responsible AI use, and how to spot potential legal issues before they escalate. Businesses can avoid costly mistakes simply because an employee recognized a red flag and raised it early.
How Corporate Law Attorneys Can Help
A corporate law attorney can be invaluable in helping business owners stay compliant by conducting research, and they can draft and negotiate contracts, develop risk management strategies, and defend their businesses if a dispute arises.
AI is a powerful tool, but it is not without its dangers. Do not let legal risks derail your business’s growth.
