Introduction
The transition to AI contracting marks a pivotal shift in technology agreements, as AI-powered functions increasingly transform customer inputs into variable outputs [1]. This evolution necessitates a comprehensive understanding of AI products’ complexities, regulatory landscapes [1], and compliance requirements.
Description
The transition to AI contracting represents a significant evolution in technology agreements [1], particularly as vendors offer AI-powered functions that transform customer inputs into variable outputs [1]. While experienced attorneys may find similarities between AI contracts and traditional SaaS agreements [1], the complexities of AI products necessitate a thorough understanding of the specific features and use cases involved [1]. For instance [1], when dealing with a customer relationship management solution that includes chatbot functionality [1], it is crucial to assess whether the chatbot is for internal use or external interaction [1], as well as to review the vendor’s documentation regarding its operation [1], expected outputs [1], and training data [1].
The regulatory landscape surrounding AI is intricate [1], with various laws and regulations impacting AI products and services [1]. In California [1] [2], significant legislative developments include the California AI Transparency Act, effective January 1, 2026 [2], which mandates that “covered providers”—entities creating generative AI systems with over 1000000 monthly users in the state—disclose their use of AI in consumer interactions. These providers are also required to offer free AI detection tools and labels to enhance consumer awareness. Non-compliance can result in penalties of $5000 per day [2], although the Act does not provide a private right of action.
Additionally, the Artificial Intelligence in Health Care Services law [2], effective January 1, 2025 [2], requires healthcare providers using generative AI for patient communications to disclose this use and provide instructions for contacting a human provider [2]. This law specifically excludes generative AI applications unrelated to patient clinical information [2], such as scheduling or billing [2]. Violations will be enforced by the Medical Board of California and other relevant authorities [2].
These regulatory developments underscore the compliance and litigation risks for companies operating in California’s evolving AI landscape [2], necessitating proactive adaptation to new legal requirements [2]. Understanding applicable laws and ensuring compliance is particularly crucial for customers deploying AI functionalities [1], as the responsibility for providing appropriate disclosures lies with them [1]. However, vendors must also clearly communicate the existence and nature of AI features in their offerings [1].
Conclusion
The shift towards AI contracting introduces significant implications for technology agreements, demanding a nuanced understanding of AI’s complexities and regulatory requirements. Companies must adapt proactively to the evolving legal landscape to mitigate compliance and litigation risks, ensuring both vendors and customers fulfill their respective responsibilities in disclosing AI functionalities.
References
[1] https://www.jdsupra.com/legalnews/ai-contracting-the-next-frontier-3122013/
[2] https://www.smithlaw.com/newsroom/publications/the-future-of-ai-compliance-preparing-for-new-global-and-state-laws
