Although there will be numerous types of AI-related agreements, this article will discuss new issues that may arise under the AI tech transaction agreement. In order to incorporate AI technology into your products or services, you should first consider licensing the technology. Even if your company develops your own AI technology, you often need to obtain licenses from other universities or research institutes for the original technology.
So what issues should you look carefully when reviewing license agreements for AI technology?
Representations and Warranties
First, although they are generally applicable to other license agreements, it is important to have representations and warranties of the following.
1) Security of the Licensor's license rights for AI technology
The Licensee needs to make sure that the Licensor has full rights and rights to enforce and permit the technology usage without infringing third-party’s rights (especially all rights related to IP).
2) Security of the Licensee’s rights to enter into a license agreement
The Licensor needs to make sure that the Licensee enters into a license agreement with full rights and rights to obtain permission to implement the technology without infringing any contract, law, or third-party’s rights.
3) Guarantee for normal function performance
The license agreement must include the assurance that the subject matter (AI technology) of the license can perform the promised function properly without any kind of defect that could result in human or property damage. Licensors will desire to make the agreement as broad as possible regarding normal function performance and as narrowly interpreted as possible if there is a loss of life or property due to a malfunction in the technology. For example, they will want to describe in detail the cause of the malfunction of the technology not caused by them.
In addition, Licensors generally state in capital letters that they do not make almost all kinds of implied warranties, but if there is no detailed provision for implied warranties in the agreement, it should be noted that each state has different recognition and scope of implied warranties. Of course, legal reviews are necessary to ensure that the contents of the agreement do not violate the enforcement provisions of the governing law.
Indemnification
The parties signing the AI License Agreement generally require that if either party breaches the contractual obligations or the law and causes damage to a third party, the breaching party must defend and indemnify the non-breaching party. To be short, the party who causes the damage must take responsibility and make sure that the other party would not at any loss for any reason at the end of the day. Therefore, even if both parties are involved in a lawsuit, the breaching party should be ultimately responsible. Instead, the non-responsible party must notify the responsible party immediately and delegate control and authority over the defense of the lawsuit to the responsible party. However, even in such cases, it is advisable to specify in the agreement that when making significantly important decisions such as determining settlement or settlement amount, the responsible party should obtain prior consent from the other party.
In particular, for licenses that are permitted to sublicense, it is recommended that the Licensee makes sure that both Licensee and Licensor of the original agreement would be indemnified for any loss if the Sublicensee breaches any contractual obligations or law and cause a third-party's damage. Otherwise, Sublicensee would only indemnify the Licensee based on the sublicense agreement, and the Licensee would have to indemnify the Licensor separately, thus it may complicate the process.