AI Contract Clauses: Protecting Your Business from Generative AI Risks
With AI reshaping business, your contracts need new protections. Learn essential clauses for data training restrictions, liability allocation, and IP protection.
Tenicia Moulden, Esq.
The Entrepreneur's Counsel
As generative AI becomes integral to business operations, traditional contract frameworks are proving inadequate. Your contracts need specific provisions to address the unique risks and opportunities of AI technology.
Critical AI Contract Clauses
1. Data Usage and Training Restrictions
Your contracts must explicitly state:
"Provider shall not use Customer Data to train, improve, or enhance AI models without Customer's explicit written consent."
This prevents your proprietary information from being absorbed into AI training datasets where it could benefit competitors.
2. Liability Allocation for AI Outputs
Traditional software liability doesn't cover AI's unpredictable outputs. Include provisions for:
- Responsibility for AI-generated content accuracy
- Liability for discriminatory or biased outputs
- Indemnification for third-party claims arising from AI decisions
3. Intellectual Property Protection
Address ownership of AI-generated content:
- Who owns AI-created work product?
- Rights to improvements made by AI to your processes
- Protection against claims that AI training violated third-party IP
State-Specific Compliance Requirements
With states like Texas passing the Texas Responsible AI Governance Act (TRAIGA) in June 2025, your contracts must address:
- Prohibition on behavioral manipulation
- Prevention of unlawful discrimination
- Protection of constitutional rights
- Transparency in AI decision-making
Essential Protection Strategies
Audit Rights
Include rights to:
- Inspect AI models affecting your business
- Request documentation of AI testing and validation
- Verify compliance with regulatory requirements
Human Oversight Requirements
Mandate human review for critical decisions:
"All AI-generated outputs affecting legal rights, financial obligations, or regulatory compliance must be reviewed and approved by qualified human personnel."
Data Security and Confidentiality
Specify how AI systems must handle your data:
- Encryption requirements for data in transit and at rest
- Restrictions on cross-border data transfers
- Data deletion rights and procedures
- Breach notification timelines specific to AI systems
Future-Proofing Your Contracts
AI regulation is evolving rapidly. Build flexibility into your contracts:
- Include provisions for regulatory updates
- Establish review cycles for AI terms
- Create mechanisms for addressing new AI capabilities
- Define procedures for handling emerging risks
Red Flags in AI Vendor Contracts
Watch out for:
- Broad rights to use your data for "improvement purposes"
- Disclaimers of all liability for AI outputs
- Lack of transparency about AI decision-making processes
- No mention of regulatory compliance obligations
Take Action Now
Don't wait for problems to arise. Review and update your contracts now to include AI-specific protections. The investment in proper contract clauses today prevents costly disputes and regulatory violations tomorrow. As AI continues to transform business, those with strong contractual protections will have the competitive advantage.