Corporate & Securities Blog

Negotiating Software Licensing Agreements in the Generative AI Era

In the ever-evolving landscape of technology, the emergence of generative artificial intelligence has ushered in a new era of possibilities. Unlike traditional software, generative AI possesses the ability to create, innovate and even surprise its users. As legal professionals, we stand at the crossroads of this profound technological advancement, tasked with negotiating software licensing agreements that grapple with unprecedented challenges related to ownership, liability and customization.

Ownership: Defining the Uncharted Territory
The concept of ownership takes on a nuanced dimension in the realm of generative AI. Unlike traditional software, which is crafted with a finite set of predefined rules, generative AI can produce outcomes that are not explicitly programmed. This raises two fundamental questions: Who owns the output of a generative AI system, and to what extent can it be considered the intellectual property of its creator?

Lawyers must carefully delineate ownership rights when negotiating software licensing agreements for generative AI. Clarity on the ownership of generated content, algorithms and any novel creations is paramount. Consideration should be given to crafting agreements that address potential disputes over ownership and providing a framework for resolution should such conflicts arise. Additionally, legal professionals should emphasize the importance of regularly updating licensing agreements to reflect the evolving nature of generative AI technologies.

Liability: Navigating the Waters of Accountability
The unpredictable nature of generative AI introduces a layer of complexity regarding liability. Traditional software operates within the confines of predetermined instructions, making it relatively straightforward to assign responsibility in the event of errors or malfunctions. However, the inherent creativity of generative AI complicates matters, as it can produce unforeseen outcomes that may not align with the intentions of its creators.

When negotiating software licensing agreements for generative AI, legal professionals should focus on clearly defining liability parameters. Agreements should outline the responsibilities of both parties in ensuring the ethical use and deployment of the AI system. Moreover, provisions addressing potential legal consequences arising from unexpected outputs should be integrated. Lawyers should advocate for comprehensive indemnification clauses that protect clients from legal repercussions stemming from the actions of generative AI.

Customization: Adapting to the Ever-Changing Landscape
Generative AI’s ability to adapt and evolve challenges the traditional notion of static software. Customization becomes a key consideration in negotiating licensing agreements, as clients may seek the flexibility to modify and enhance the AI system to meet evolving business needs. Lawyers must facilitate agreements that strike a balance between granting their clients the necessary customization rights and protecting the integrity and security of the underlying AI technology.

Legal professionals should advocate for a clear delineation of customization boundaries in addressing customization challenges. Licensing agreements should specify the extent to which clients can modify the AI system and the obligations associated with such modifications, including potential impacts on performance, security and compliance. Emphasizing the importance of regular communication between the parties to address evolving customization requirements is essential in ensuring that licensing agreements remain relevant and effective in an ever-changing technological landscape.

Moving Forward: Implementing a Paradigm Shift in Strategy
Negotiating software licensing agreements for generative AI requires a paradigm shift in strategy for legal professionals. Ownership, liability and customization present unprecedented challenges that demand thoughtful consideration and strategic drafting. As we stand at the intersection of law and technology, lawyers must navigate these uncharted waters with a keen awareness of the unique characteristics of generative AI, ensuring their clients are well positioned to harness the benefits of this groundbreaking technology while mitigating the potential legal risks.


Meet the Author

David P. Fitzgibbon

David Fitzgibbon concentrates his practice on intellectual property matters, with a focus on chemical and mechanical arts. He is experienced in drafting and procuring patents, counseling clients regarding the scope and significance of their and others’ patent and IP rights, and negotiating technology-related agreements on behalf of clients.


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